YEUNG PUI YING ANNA v. DAY & CHAN (a firm) AND OTHERS

CACV 67/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 67 OF 2010

(ON APPEAL FROM HCA NO. 2150 OF 2008)

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REASONS FOR JUDGMENT

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Hon Ma CJHC :

1.  On 29 October 2008, the Plaintiff commenced an action against her former solicitors, the 1st Defendant (then the only Defendant), for damages in relation to the Defendant’s failure properly to advise her in relation to a guarantee dated 23 June 1994 (“the Guarantee”).  By a summons dated 14 July 2009, the Plaintiff applied to join the 2nd and 3rd Defendants in the action, they being alleged to be partners in the 1st Defendant at the material time.  On 17 February 2010, Deputy High Court Judge Burrell ordered that the 2nd Defendant be joined (the 3rd Defendant having consented to the joinder).

2.  The 2nd Defendant appealed to this Court.  The issue before us was whether the joinder of the 2nd Defendant ought to have been disallowed (as the 2nd Defendant contended) by reason of the relevant limitation period having already expired at the time of the application to join (and having expired even at the time the action was commenced in 2008).  Deputy High Court Judge Burrell was of the view that it had not; at least arguably not.

3.  After hearing submissions from counsel, we allowed the appeal, set aside the order of Deputy High Court Judge Burrell joining the 2nd Defendant and dismissed the joinder summons dated 14 July 2009.  Costs of the appeal and in the court below were also ordered to be paid by the Plaintiff to the 2nd Defendant, such costs to be taxed if not agreed.  It was indicated that the reasons for judgment would be handed down in due course.

Background

4.  Under the Guarantee, the Plaintiff and her husband (“Wong”) assumed joint and several liability as sureties for the indebtedness of their company, Shun Kai Bullion Co Ltd (“SKB”) to a lender, Chow Tai Fook Jewellery Co Ltd (“CTF”), which had made a loan to SKB of $1.5 million.  As stated above, the Guarantee was executed on 23 June 1994.

5.  A default or defaults having occurred in the repayment of the loan made to SKB, demands under the Guarantee were accordingly made to the Plaintiff and Wong in 1998.  A Writ endorsed with a Statement of Claim was issued against the Plaintiff and Wong on 28 December 1998.

6.  The action was defended by the Plaintiff and Wong.  We have been provided with a copy of the Defence and Counterclaim.  Briefly, the defence run by the Plaintiff (and by Wong) was to the effect that before they signed the Guarantee, it had been represented to them by a clerk of their solicitors (the 1st Defendant in the present action), who had acted for CTF as well, that the Guarantee was a mere formality and not intended to be enforced.  Other defences based on the Money Lenders Ordinance, Cap. 163 were also advanced.

7.  On 5 March 2007, judgment was entered by consent against the Plaintiff in the sum of $1,530,000, this sum inclusive of costs.  The judgment was apparently part of an overall settlement reached between the parties.  The consent judgment involved only CTF and the Plaintiff; on 6 October 2006, Wong had been adjudged bankrupt by Barma J.

The claim against the solicitors

8.  As stated above, the 1st Defendant had been engaged as the Plaintiff’s solicitors for the purposes of entering into the Guarantee.  In the present action, the Plaintiff claims against the 1st Defendant on the basis of both breach of contract and negligence.  As pleaded, the particulars going to both causes of action and to the ensuing loss are the same : -

“8.   In breach of the said duties, the Defendants wrongfully;

(i) Allowed a legally unqualified person, namely Pak, to prepare and give legal advice to the Plaintiff in respect of the Legal Charge and the Guarantee;

(ii)    Allowed a legally unqualified person, namely Pak, to induce the Plaintiff to sign the Guarantee;

(iii)  Failed to exercise due care, skill and diligence to provide legal advice to the Plaintiff;

(iv)  Put themselves in a position of conflict of interest whereby the Defendants acted for both Chow Tai Fook and the Plaintiff;

(v)   Failed to disclose to the Plaintiff that they were also acting for Chow Tai Fook;

(vi)  Failed to advise the Plaintiff to seek independent legal advice and, further, not to incur actual, contingent or potential liability by signing the Guarantee or otherwise to act until having done so;

(vii)    Failed to advise the Plaintiff that her potential liability under the Guarantee exceeded the potential benefit to her, if any, of the loan in respect of which she was to be made a surety by the Guarantee;

(viii)   Failed to advise the Plaintiff that, upon the Plaintiff’s signature of the Guarantee, her liability thereunder, actual, contingent or potential, would be such that :

(a)   In the event that the Company was or became insolvent and/or was wound up, the Plaintiff would not be able to recover part or all of her indemnity from the Company as the Company’s Guarantor;

(b)  In the event that Wong was or became insolvent and/or was adjudged bankrupt, the Plaintiff would not be able to recover part or all her indemnity from Wong as a guarantor both jointly and severally liable to Chow Tai Fook with Wong.

9.    The Plaintiff has suffered loss and damage, in that, in the event, by virtue of having signed the Guarantee and not otherwise, the Plaintiff has became liable to Chow Tai Fook and incurred a judgment debt of HK$1,530,000 and legal costs in High Court Action No. 22168 of 1998 – an action instituted and prosecuted by Chow Tai Fook against, inter alia, the Plaintiff upon the Guarantee, and resulting in a final order of the Court of First Instance dated 5^th March , 2007.

10.  Further, the Plaintiff has suffered such loss and damage in circumstances in which the Company has been wound up and Wong has been adjudged bankrupt, and the Plaintiff has not recovered, and will not be able to recover, any indemnity from either the Company or Wong.

11.  The said loss and damage were caused by the Defendant’s above pleaded breaches of duty.  But for the said breaches, the Plaintiff would not have signed the Guarantee and not become liable to Chow Tai Fook, nor incurred the aforesaid judgment debt or legal costs.”

9.  There is no independent cause of action pleaded against the 2nd and 3rd Defendants : as stated above, their involvement is to the extent that they were allegedly partners in the 1st Defendant at the material time.

Is the claim against the 2nd Defendant time barred?

10.  As Mr Samson Hung (for the 2nd Defendant) has pointed out, no person will be allowed to be joined as a defendant to proceedings after the expiry of the relevant limitation period : Hong Kong Civil Procedure 2010, Vol.1, para. 15/6/3.  In the present case, the 2nd Defendant contends that not only was the action outside the limitation period at the time of the joinder summons (14 July 2009), this was the position even at the date of the issue of the Writ in the present action (29 October 2008).

11.  I have approached this matter as though it had been an application to strike out.  In other words, the burden was on the 2nd Defendant to show that it was plain and obvious that the limitation period had expired.

12.  The relevant limitation provisions are contained in section 4 of the Limitation Ordinance, Cap. 347 : -

“4.   Limitation of actions of contract and tort, and certain other actions

(1)     The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say –

(a)    actions founded on simple contract or on tort;

…..”

13.  The question for this Court was when the causes of action, as pleaded in the Statement of Claim, accrued for the purposes of time beginning to run under that provision.  As far as the claim based on contract was concerned, time began to run from the date of the alleged breach of contract : this was in June 1994 when the 1st Defendant committed the various breaches alleged in the Statement of Claim (see paragraph 8 above).

14.  The focus of the argument became therefore identifying the point when the action in tort (negligence) accrued for the purposes of limitation.

15.  Unlike contractual claims (when the cause of action accrues when a breach of contract takes place), by contrast, claims in tort accrue when the damage attributable to the alleged tortious act, occurs.  In Kensland Realty Ltd v Tai, Tang & Chong (2008) 11 HKCFAR 237, at 259-60 (paragraph 51), Ribeiro PJ said this : -

“51. A cause of action in tort accrues when the damage which results from the tortious conduct is real, as distinct from minimal or negligible and is actual, as opposed to purely contingent.  The concept of ‘damage’ is given a broad meaning.  It encompasses damage consisting of ‘any detriment, liability or loss capable of assessment in money terms.’  Where economic loss is involved, it includes loss suffered ‘by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability.’  Whether damage has been incurred in any particular case is a question of fact.  Its precise quantification may only be possible at a later date, by which time it may have become more serious, but that does not detract from the earlier accrual of the cause of action.  The damage must, however, be recoverable as falling within the measure of damages applicable to the defendant’s wrong in question.”

16.  In my judgment, the cause of action in tort relied on by the Plaintiff in the present action accrued in 1998, and for the purposes of section 4 of the Limitation Ordinance, time therefore began to run as from that date : -

(1)    It is clear from the Statement of Claim, in particular paragraph 8 thereof, that the Plaintiff’s real complaint was that she had not been properly advised in relation to her liability (whether “actual, contingent or potential”) under the Guarantee.

(2)      The Plaintiff’s loss was her liability under the Guarantee – this loss was adjudged to be $1,530,000 (see paragraph 7 above) together with her legal costs : - paragraph 9 of the Statement of Claim (paragraph  8 above).

(3)    Although this loss was quantified only on 5 March 2007 when judgment was entered against her, the Plaintiff’s liability under the Guarantee crystallized in 1998 when demands were made to her thereunder.  The latest point when a demand for payment under the Guarantee was made must have been 28 December 1998 when proceedings were commenced against her by CTF : see paragraph 5 above.  This is sufficient to enable time to begin to run.  The passage from the judgment of Ribeiro PJ in Kensland (see paragraph 15 above) refers, in the context of economic loss, to the incurrence of a liability as the point when a cause of action based on tort, crystallizes.  Specifically, in relation to guarantees and similar indemnity agreements, this point is reached upon a demand being made : see Kensland at paragraphs 100, 157 and 159.  At this point, the liability crystallizes, and it is irrelevant (for the purposes of the limitation period becoming activated) that the actual quantification of that liability (through a judgment or otherwise) or the actual payment of that liability, occurs at a later stage.

(4)    I have not forgotten the argument advanced on behalf of the Plaintiff that the damage suffered by her consisted of the loss of her right of indemnity or contribution from SKB and her husband Wong, and that this damage did not occur (so it is said) until SKB was wound up and Wong was made bankrupt.  Wong having been made bankrupt only in 2006 (see paragraph  7 above), time therefore only began to run as from that date.  One of the particulars of negligence pleaded in paragraph 8(viii) of the Statement of Claim was the failure to advise the Plaintiff that she would lose her right of indemnity or contribution from SKB and Wong in the event of their being wound up or made bankrupt.  Paragraph 10 of the Statement of Claim pleads that the Plaintiff suffered loss and damage in these circumstances.  This argument eventually became the main plank of the submissions before us by Mr John Swaine (for the Plaintiff).

(5)    However, in my view, properly analyzed, the overall complaint made by the Plaintiff in the Statement of Claim has always been the failure on her former solicitors’ part to advise her properly as regards her liabilities under the Guarantee.  The failure to advise in relation to the company’s winding up or Wong’s bankruptcy (even if this can be sustained as a matter of law and, despite doubts as to this, I express no views on the allegation) stem from this overall complaint, and amount to no more than examples of it.  It has never been the Plaintiff’s case that she was specifically seeking advice from the solicitors on her rights of recovery under an indemnity or contribution or otherwise.  If this had been the Plaintiff’s case, different considerations may have entered into the analysis.  It will be recalled that in the guarantee action instituted by CTF against the Plaintiff, the defence was based on misrepresentation of the enforceability of the Guarantee (see paragraph  6 above).  This is more consistent with an allegation that the solicitors had failed to advise properly in relation to the Plaintiff’s liabilities under the Guarantee than with an allegation of failure to advise on issues of contribution or indemnity.

(6)    Moreover, paragraph 11 of the Statement of Claim clearly sets out the damage that the Plaintiff alleges she had suffered.  It is said that but for the alleged acts or omissions pleaded in paragraph 8 of the Statement of Claim, “the Plaintiff would not have signed the Guarantee and not become liable to [CTF], nor incurred the aforesaid judgment debt or legal costs”.  This is repeated in the affirmation evidence in these proceedings (paragraph 2(f) of the Plaintiff’s affirmation and paragraph 11 of the affirmation of Kuan Man Chun, the Plaintiff’s solicitor in these proceedings).  If one were to ask rhetorically the point in time when the Plaintiff incurred the liabilities identified in paragraph 11 of the Statement of Claim, the answer would clearly be 1998, the time when her liability under the Guarantee crystallized.

17.  The Plaintiff’s cause of action in tort having therefore accrued in 1998 (and the one in contract having accrued much earlier in 1994), at the time that the present proceedings were instituted and also when the joinder summons was issued, the action against the 2nd Defendant was already time barred.  In these circumstances, the joinder of the 2nd Defendant in the present action ought not have been permitted.

Sections 31 and 32 of the Limitation Ordinance

18.  No arguments were advanced by Mr Swaine relying on section 31 of the Limitation Ordinance (which deals with the extension of the limitation period in negligence actions involving latent damage).  It is perhaps easy to see why no reliance was made : had it been necessary to decide this, I would very much have been inclined to reject it on the application of the principles adumbrated in Kensland.

19.  Relatively late in the day, the 2nd Defendant applied by Summons to amend the Notice of Appeal to enable an argument to be advanced based on section 32 of the Limitation Ordinance.  Given my views on section 4, it was not necessary in any event to consider this provision.

Conclusion

20.  For the above reasons, the appeal was allowed with costs.

Hon Rogers VP :

21.  I agree with the reasons for judgment of Ma CJHC.