YEUNG SHU v. ALFRED LAU & CO

1990 No. A3759

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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INTRODUCTION

1. In this action, the Plaintiff claims damages against the Defendant for breach of contract and negligence. The Defendant defends the action on two grounds: first, that the Plaintiff's claim is time-barred; secondly, that such loss as the Plaintiff sustained was not caused by the Defendant's breach of contract or negligence. In addition, there are third party proceedings in which the Defendant claims an indemnity from the Third Party in respect of the Plaintiff's claim if it is found to be liable to the Plaintiff. I decided to try the question as to whether the Plaintiff's claim is time-barred first. I gave judgment on that issue on 16th February 1996. My judgment is reported in [1996] 1 HKC 562. I held that the Plaintiff's claim for damages for breach of contract was time-barred, but that his claim for damages in tort was not. The judgment which I am handing down today relates to the other issues in the action.

2. There were originally two Plaintiffs in the action: Yeung Shu and his wife, Keh Pick Ha. However, Madam Keh died on 8th February 1991, and on 27th June 1995 Master Jones permitted Yeung Shu to carry on the proceedings on his own behalf and on behalf of his late wife's estate. Accordingly, when I refer in this judgment to the Plaintiff, I am referring to Yeung Shu alone.

THE FACTS

3. Save for evidence from a surveyor relating to the extent to which the value of residential property has fluctuated in Hong Kong, no evidence was called before me. That was because there is a chronology of the relevant events agreed between the Plaintiff and the Defendant, a large number of facts have been agreed by all parties, and most if not all of the other relevant facts can be discerned from the documents contained in the agreed bundle of documents. My findings of fact are set out below. There are some differences between the facts set out in this judgment and those set out in the judgment I handed down on 16th February 1996 because some of the facts have been clarified, and others are relevant now for the first time.

4. In 1979, the Third Party, Chang Pao Ching, was planning to develop a site on Ap Lei Chau. He was proposing to build a block of flats at 55 Ap Lei Chau Main Street. The Plaintiff and his wife decided to buy one of the proposed flats. Accordingly, by a sale and purchase agreement dated 13th November 1979 ("the sale and purchase agreement"), between the Plaintiff and his wife on the one hand and Mr. Chang on the other, Mr. Chang agreed to sell to the Plaintiff and his wife a share of the land on which the block of flats was to be built, together with the exclusive right to occupy the flat which was going to be at the front of the 3rd floor of the building. The purchase price was $84,000.00, and the sale and purchase agreement acknowledged that the Plaintiff and his wife had paid Mr. Chang a deposit of $33,600.00. However, the Plaintiff and his wife were not the first people to have been interested in purchasing the flat from Mr. Chang. Mr. Chang had previously agreed to sell the flat to Lee Shui Wai. But that agreement was cancelled, and the Plaintiff and his wife paid the sum of $56,000.00 to Mr. Lee in return for its cancellation and for the right to buy the flat themselves.

5. The sale and purchase agreement provided that the sale itself was to be completed within 7 days of the Plaintiff and his wife being notified of the issue of an occupation certificate for the building. However, a supplemental agreement was executed on the same day as the sale and purchase agreement. It provided for the date for the completion of the construction of the building to be extended. Moreover, the Plaintiff and his wife were obliged to pay an additional sum of $4,000.00 to Mr. Chang as "compensation". The agreement did not record what this was compensation for: perhaps the cost of constructing the building was more than Mr. Chang had anticipated, and he wanted the Plaintiff and his wife to contribute to the additional expenditure.

6. The Defendant, Messrs. Alfred Lau & Co., is a firm of solicitors. It acted for the Plaintiff and his wife on the transaction. It submitted a bill for its services which was dated 13th November 1979. The bill was for $729.00. It was paid by the Plaintiff and his wife. It included the solicitors' fees of $75.00 for registering the sale and purchase agreement, and a disbursement of $30.00 being the fee payable on registration. Neither the fee of $75.00 nor the disbursement of $30.00 should have been charged, because the Defendant admits that the sale and purchase agreement was not registered in the Land Registry at all.

7. Mr. Chang subsequently left Hong Kong for Taiwan. The construction of the building was never completed, and no occupation certificate was ever issued. Accordingly, the sale to the Plaintiff and his wife of the share in the land which they were buying was never completed either. By the early 1980s, the Plaintiff knew that Mr. Chang had gone to live in Taiwan. He was informed by Siu Chun Wing (to whom Mr. Chang subsequently gave a power of attorney) that Mr. Siu would try to contact Mr. Chang, but Mr. Chang never contacted him.

8. In 1988, Mr. Siu executed two documents on Mr. Chang's behalf which related to the land on which Mr. Chang had been proposing to build the block of flats:

(i) On 1st June 1988, Mr Siu executed a sale and purchase agreement under which Mr. Chang sold the land to Harvest Step Development Ltd. ("Harvest Step"). The land was being sold to Harvest Step under this agreement along with adjoining land at 49, 51 and 53 Ap Lei Chau Main Street. The purchase price of all the land to which the sale and purchase agreement related was $16.8m.

(ii) On 9th September 1988, Mr. Siu executed an assignment under which Mr. Chang assigned the land to Harvest Step. Again, the land was assigned to Harvest Step under the assignment along with the adjoining land at 49, 51 and 53 Ap Lei Chau Main Street. Clause 1 of the assignment showed that Mr. Chang's share of the purchase price of $16.8m. (i.e. the share attributable to the sale of the land at 55 Ap Lei Chau Main Street) was $4.2m., i.e. one-quarter of $16.8m.

9. Clauses 25 and 27 of the sale and purchase agreement under which the land was sold to Harvest Step are important. They provide as follows:

"25. It is acknowledged by [Harvest Step] that there are a number of Sale and Purchase Agreements registered against the [land] (or parts thereof) which have not been completed by the execution of Assignments to the purchasers thereunder. It is understood by [Harvest Step] that the Vendors [including Mr. Chang] are negotiating for the cancellation of these Sale and Purchase Agreements and that in the event of the Vendors failing to complete the sale of the [land] in consequence of their failure to procure prior to completion the cancellation of all Sale and Purchase Agreements registered against the [land] (or any part or parts thereof) prior to completion hereunder [Harvest Step] shall be entitled to the return of its deposit together with interest accrued thereon but without compensation to [Harvest Step] by the Vendors and without any other right or remedy against the Vendors in consequences of their failure to complete and the parties hereto shall execute an Agreement cancelling the sale of the [land] to [Harvest Step] hereunder and shall cause a Memorial of the same to be registered in the Land Office.

27. The Vendors shall, within 7 days from the date of signing of this Agreement, deliver to [Harvest Step's] Solicitors a list of the Sale and Purchase Agreements referred to in Clause 25 hereof and shall at the end of each calendar month inform [Harvest Step's] Solicitors the progress as to the execution and registration of the Cancellation Agreements in respect of such Sale and Purchase Agreements."

There can have been only one reason for the inclusion of these clauses in the sale and purchase agreement of 1st June 1988. Harvest Step wanted to ensure that it took the land free from encumbrances. Accordingly, in the event of any registered but uncompleted sale and purchase agreement not being cancelled, Harvest Step would be entitled to pull out of its purchase of the land. Thus, if the sale and purchase agreement which the Plaintiff and his wife had entered into on 13th November 1979 had been registered, Harvest Step would have been entitled to pull out of the purchase of the land unless Mr. Chang had been able to procure the cancellation of the agreement which he had concluded with the Plaintiff and his wife.

10. Although the sale and purchase agreement which the Plaintiff and his wife had entered into on 13th November 1979 had not been registered, Mr. Chang attempted to procure its cancellation. He instructed his solicitors to offer the Plaintiff and his wife the sum of $35,000.00 in return for their agreement to its cancellation. That sum was said to represent the return of the deposit of $30,000.00 which the Plaintiff and his wife had paid (which was wrong because they had in fact paid an initial deposit of $33,600.00) and a "compensatory payment" of $5,000.00. It did not take into account the sum of $56,000.00 paid by the Plaintiff and his wife to Mr. Lee or the additional sum of $4,000.00 paid to Mr. Chang. The Plaintiff and his wife refused the offer.

11. Similar offers were made to other people who entered into sale and purchase agreements with Mr. Chang for a purchase of a share of the land on which the block of flats was to be built, together with the exclusive right to occupy one of those flats. One such offer is relevant. In 1977, Madam Man Sau Lan had agreed to buy one of the flats for $92,000.00. She had paid Mr. Chang a deposit of $10,000.00. In 1988, she agreed to the cancellation of the agreement, and was paid the sum of $80,000.00 for agreeing to do so.

THE DEFENDANT'S NEGLIGENCE

12. The conduct of the Defendant which is said to be negligent was its failure to register the sale and purchase agreement of 13th November 1979 in the Land Registry. The effect of that failure is apparent from section 3(2) of the Land Registration Ordinance (Cap. 128). That provides that instruments affecting land which are not registered "shall, as against any subsequent bona fide purchaser ... for valuable consideration of the same [land] ... , be absolutely null and void to all intents and purposes". Accordingly, non-registration of the sale and purchase agreement by the Defendant meant that the interest in the land which the sale and purchase agreement had given to the Plaintiff and his wife would be defeated by a bona fide purchaser of the land for value.

13. The Defendant does not formally admit that its failure to register the agreement amounted to a breach of its duty of care to the Plaintiff and his wife, but realistically Mr. Wilson Chan for the Defendant did not seek to argue otherwise. In the circumstances, I have no difficulty in finding that the Defendant's failure to register the sale and purchase agreement of 13th November 1979 amounted to a breach of its duty of care to the Plaintiff and his wife.

THE PLAINTIFF'S LOSS

14. The Plaintiff's case is that since Harvest Step had been a bona fide purchaser for value, the assignment of the land to Harvest Step on 9th September 1988 meant that, as a result of the non-registration of the sale and purchase agreement, the sale and purchase agreement was null and void as against Harvest Step. Accordingly, the non-registration of the sale and purchase agreement meant that the interest of the Plaintiff and his wife in the land had been extinguished as against Harvest Step, and they therefore could not prevent the assignment of the land to Harvest Step. It is not now disputed that that is the loss which the Plaintiff and his wife suffered. The only issue is whether that loss was caused by the Defendant's failure to register the sale and purchase agreement.

CAUSATION OF THE PLAINTIFF'S LOSS

15. Mr. Chan developed at some length an interesting and well-structured argument as to why the non-registration of the sale and purchase agreement was not causally connected to the Plaintiff's loss. But stripped to its essentials, his argument was that by the time that the land was assigned to Harvest Step on 9th September 1988, the Plaintiff and his wife had already lost their interest in the land in its entirety. Accordingly, it was not the non-registration of the sale and purchase agreement which enabled Harvest Step to acquire a good title to the land and to override such interest as the Plaintiff and his wife had in the land. That interest in the land had already been lost because they could no longer obtain an order for specific performance of the sale and purchase agreement. They are said to have lost that right by reason of their failure to commence proceedings against Mr. Chang for specific performance of the sale and purchase agreement.

16. There is no doubt that if the Plaintiff and his wife had already lost their right to obtain an order for specific performance of the sale and purchase agreement, they could not have prevented the assignment of the land to Harvest Step even if the sale and purchase agreement had been registered. The assignment would have taken effect subject to such beneficial interest which the Plaintiff and his wife may still have had in the land; but even if they continued to have an interest in the land, that interest would have been incapable of enforcement once specific performance of the sale and purchase agreement was no longer available to them. However, in my judgment, it cannot be said that the Plaintiff and his wife had already lost their right to obtain specific performance of the sale and purchase agreement. Although the sale and purchase agreement was an agreement which was capable of enforcement by specific performance, the conditions entitling the Plaintiff and his wife to an order for specific performance had not arisen. I reach that conclusion by the following route:

(i) The sale and purchase agreement was an agreement for the sale and purchase of land. The remedy of specific performance was therefore available to the Plaintiff and his wife to compel Mr. Chang to complete the sale of the land.

(ii) However, the time for Mr. Chang to complete the sale of the land was dependent on when the construction of the building itself was completed.

(iii) Accordingly, the remedy of specific performance to compel Mr. Chang to complete the sale of the land to the Plaintiff and his wife was not available until the construction of the building had been completed. It is common ground that the remedy of specific performance was not available to the Plaintiff and his wife in order to compel Mr. Chang to complete the construction of the building.

(iv) Since the construction of the building was never completed, the circumstances in which the Plaintiff and his wife would be entitled to an order for specific performance compelling Mr. Chang to complete the sale of the land had not arisen.

I recognise that it was open to the Plaintiff and his wife to commence proceedings for an order for specific performance compelling Mr. Chang to complete the sale of the land. The issue of such proceedings prior to the completion of the construction of the building would not have been premature (see Hasham v. Zenab [1960] AC 316), even though no order for specific performance could have been made in the proceedings until after the time for performance by Mr. Chang of his obligation to complete the sale of land to the Plaintiff and his wife. But since it must have been apparent to the Plaintiff and his wife that there was little chance of Mr. Chang completing the construction of the building, it would have been absurd to expect the Plaintiff and his wife to have commenced proceedings for specific performance.

17. For these reasons, the Plaintiff and his wife had not lost their right to obtain specific performance of the sale and purchase agreement by the date of the assignment of the land to Harvest Step. It follows that it was the Defendant's failure to register the sale and purchase agreement which resulted in the extinction of the interest of the Plaintiff and his wife in the land as against Harvest Step, and therefore stopped the Plaintiff and his wife from preventing the assignment of the land to Harvest Step.

THE MEASURE OF THE PLAINTIFF'S LOSS

18. Two alternative methods of calculating the Plaintiff's loss have been suggested:

(i) Since the Plaintiff and his wife lost their interest in the land as against Harvest Step, the measure of their loss is the value of that interest. The value of that interest is the market value of the flat on the date on which they lost that interest, i.e. on 9th September 1988 when the land was assigned to Harvest Step, less the unpaid balance of the purchase price.

(ii) Alternatively, if the sale and purchase agreement had been registered, Mr. Chang would have had to persuade the Plaintiff and his wife to consent to a cancellation of the sale and purchase agreement to prevent Harvest Step being entitled to call off its purchase of the land. Their consent to the cancellation of the sale and purchase agreement would have come at a price. Accordingly, the alternative loss which the Plaintiff and his wife suffered as a result of the sale and purchase agreement not having been registered was the opportunity to negotiate a cancellation charge from Mr. Chang from a position of strength. The non-registration of the sale and purchase agreement meant that they had no bargaining power whatever.

19. I do not think that the market value of the flat on the date of the assignment to Harvest Step is an accurate reflection of the loss which was caused to the Plaintiff and his wife by the non-registration of the sale and purchase agreement. It assumes that the construction of the building was in fact completed, because only then would their interest in the flat have been commensurate to the market value of the flat. Since the construction of the building was never completed, the premise on which this measure of loss was based disappears. It would have been a much more accurate reflection of the loss which was caused to the Plaintiff and his wife by Mr. Chang's breach of the sale and purchase agreement in not completing the construction of the building and in not completing the sale of the land. Accordingly, I have no doubt that the correct measure of the Plaintiff's loss as against the Defendant is the loss of the opportunity to negotiate a cancellation charge from Mr. Chang.

THE QUANTUM OF THAT LOSS

20. Valuing the loss of the opportunity to negotiate a cancellation charge from Mr. Chang is not an exact science. It depends on what the result of the negotiations is likely to have been. That depends on (a) what Mr. Chang would have been prepared to offer, and (b) what the Plaintiff and his wife would have been prepared to accept.

21. As for what Mr. Chang would have been prepared to offer, I did not have the benefit of any evidence from Mr. Chang on the issue. Mr. Chan was, I think, content for the documents to speak for themselves. I note that on 2nd October 1986 Mr. Chang authorised Mr. Siu to negotiate cancellation charges with those persons (such as the Plaintiff and his wife) to whom he had already agreed to sell flats in the building, but that he had limited the compensation to $30,000.00 - $50,000.00 per flat. However, that was at the time when the price which he was prepared to accept for the land from a potential developer was $2m., and I do not believe that his position in 1986 was in any way a reliable guide as to compensation which he would have been prepared to pay in 1988. It is true that in his letter to his solicitors dated 14th November 1988 he was authorising them to offer relatively modest amounts of compensation to those of the original purchasers who had not yet signed cancellation agreements. However, I am sure that if the sale and purchase agreement of 13th November 1979 had been registered, and if the Plaintiff and his wife had held out for a large sum, Mr. Chang would have been prepared to pay a not inconsiderable sum to avoid the significant risk of Harvest Step pulling out of the agreement and thereby depriving him of the $4.2m. which he was to receive under that agreement. He had, after all, been prepared to pay a cancellation charge of $80,000.00 to Madam Man, when she had only paid him $10,000.00 by way of deposit. In view of what the Plaintiff and his wife had already paid for the flat, I think that Mr. Chang would have been prepared to pay them as much as $200,000.00 to ensure that his deal with Harvest Step was not lost.

22. As for what the Plaintiff and his wife would have been prepared to accept, I do not have the benefit of any evidence from the Plaintiff on this issue. Mr. Jat Sew Tong for the Plaintiff told me that his evidence would not have helped me. If he had said that he would have held out for a large sum, I would have been unlikely to place much weight on that because it would have been so obviously self-serving. On the other hand, if he had been persuaded to say in cross-examination that he would have accepted only a modest sum, I would have had to discount that in view of the difficulty of a man of the Plaintiff's age now being able to recall what his stance in negotiations in 1988 would have been. I am not persuaded that his evidence would have been as unhelpful as Mr. Jat suggests, but since he has not given evidence, I must do what I can without it. What I must not do is to speculate about what his evidence would have been, or to draw adverse inferences as to what he and his wife would have been prepared to accept from the fact that he was not called as a witness.

23. What I do know is that he and his wife refused the relatively paltry sum offered to them by Mr. Chang in 1988. I am sure that the very least which they would have been prepared to accept is what they had already paid out for the flat: the sum of $56,000.00 to Mr. Lee, and the sums of $33,600.00 and $4,000.00 to Mr. Chang - a total of $93,600.00 in all. I think it likely that they would have wanted interest on that sum to compensate them for being out of pocket during the 9 years since 1979, and I suspect that they would have wanted to be compensated for the loss of the bargain, in view of the way that the value of the flat would have increased over the years. If the construction of the building had been completed, the value of the flat which the Plaintiff and his wife would have got is agreed to have been $138,500.00 in November 1979 when the sale and purchase agreement was entered into and $340,000.00 in September 1988 when the land was assigned to Harvest Step. In all the circumstances, I do not believe that the Plaintiff and his wife would have settled for a cancellation charge of less than $150,000.00.

24. In the light of these considerations, the best estimate I can make as to the cancellation charge which the Plaintiff and his wife would in fact have agreed with Mr. Chang in the negotiations is a sum in the region of $175,000.00. Accordingly, it is the sum of $175,000.00 which I rule represents the loss of the opportunity to negotiate a cancellation charge from Mr. Chang, and the Plaintiff is entitled to judgment for that sum from the Defendant. He is entitled to interest on that amount. I was not addressed on the rate of interest or from when it should accrue, but instead of requiring the parties to return for further argument, I propose to make an order nisi relating to interest. Interest will be at the judgment rate determined from time to time by the Chief Justice, and will run from 1st January 1989, which is the date by which I find such cancellation charge as would have been negotiated would have been paid to the Plaintiff and his wife. I give the parties liberty to apply within 14 days of the handing down of this judgment if they disagree with this order nisi.

MR. CHANG'S LIABILITY UNDER THE THIRD PARTY NOTICE

25. Mr. Chang is liable to make a contribution to the Defendant for the damages which the Defendant is required to pay to the Plaintiff if he would have been liable to the Plaintiff for the same loss. That is the effect of section 3(1) of the Civil Liability (Contribution) Ordinance (Cap. 377) ("the CLCO"), which provides:

"... any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."

Provided that the loss for which the Defendant and Mr. Chang are liable to the Plaintiff is the same loss, it does not matter whether the legal basis for liability for that loss is different. That is the effect of section 2(3) of the CLCO, which provides:

"A person is liable in respect of any damage for the purposes of this Ordinance if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."

26. The loss which the Plaintiff and his wife suffered was the loss of their interest in the land as against Harvest Step. On a correct analysis of the facts, it is plain that Mr. Chang would have been liable to the Plaintiff for that loss just as the Defendant is, even though the acts complained of against the Defendant and Mr. Chang are different, and even though the loss of the Plaintiff and his wife only occurred as a result of the acts of both the Defendant and Mr. Chang:

(i) The Defendant. The act complained of against the Defendant was its failure to register the sale and purchase agreement. But for that failure, the assignment of the land to Harvest Step would not have defeated the interest of the Plaintiff and his wife in the land.

(ii) Mr. Chang. The act complained of against Mr. Chang was his assignment of the land to Harvest Step in breach of the sale and purchase agreement he had entered into with the Plaintiff and his wife. But for that breach, the interest of the Plaintiff and his wife in the land would have continued.

Accordingly, Mr. Chang is liable to make a contribution to the Defendant for the damages which I have ordered the Defendant to pay to the Plaintiff.

THE AMOUNT OF MR. CHANG'S CONTRIBUTION

27. Section 4(1) of the CLCO provides:

"... the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question."

These words have been taken from section 2(1) of the Civil Liability (Contribution) Act 1978, and are the subject of discussion in Clerk and Lindsell on Torts, 17th ed., para. 4-63:

"There has been some controversy as to the proper basis of apportionment. In two cases Hilbery J. took 'responsibility' to refer to the extent to which each tortfeasor caused the damage, and not to their relative culpability. Hallett J., on the other hand, declined to follow this interpretation, and it is probably correct that neither element should be disregarded."

One of the two cases decided by Hilbery J. - Collins v. Hertfordshire County Council [1947] 1 KB 598 - was cited to me by Miss June Wee for Mr. Chang, whereas Mr. Chan referred me to a more recent case -Madden v. Quirke [1989] 1 WLR 702 - in which Simon Brown J. (as he then was) said at p.707E that responsibility "involves considerations both of blameworthiness and of causative potency".

28. I do not propose to add my own contribution to this interesting debate, because whether "responsibility" relates to causation alone or to culpability as well, I have reached the view that on both approaches the apportionment in this case should be the same, namely that the Defendant and Mr. Chang should be equally liable for the loss suffered by the Plaintiff and his wife. If causation was the only consideration, they can both be said to have caused the loss of the interest of the Plaintiff and his wife in the land as against Harvest Step. That loss would not have occurred without both the Defendant's failure to register the sale and purchase agreement and Mr. Chang's assignment of the land to Harvest Step. If blameworthiness is to be taken into account as well, the Defendant's failure to register the sale and purchase agreement was as serious an act of negligence as Mr. Chang's assignment of the land to Harvest Step was a serious breach of contract. I do not overlook Mr. Chan's point that anything less than a full indemnity from Mr. Chang will result in his benefiting from his breach of contract, but

(i) it was the Defendant's negligence which enabled him to do so, and

(ii) any contribution order made against Mr. Chang will result in the Defendant being relieved of its full responsibility for the consequences of its negligence.

29. For these reasons, I order Mr. Chang to pay the sum of $87,500.00 to the Defendant, together with one-half the interest which I have ordered the Defendant to pay to the Plaintiff.

COSTS

30. The orders nisi I make as to costs are as follows:

(i) the Defendant must pay to the Plaintiff his costs of the action, to be taxed if not agreed;

(ii) for the avoidance of doubt, the costs in (i) do not include the costs ordered to be paid by the Defendant by the order made on 16th February 1996;

(iii) Mr. Chang must indemnify the Defendant one-half of the costs in (i);

(iv) there be no order for costs in the third party proceedings; and

(v) the Plaintiff's costs be taxed in accordance with the Legal Aid Regulations.

In the light of the undertakings given to me at the conclusion of the hearing, I make no order as to the costs reserved on 11th April 1996.