KENSLAND REALITY LTD (in compulsory liquidation) v. TAI TANG AND CHONG

HCA 74/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 74 OF 2004

____________

____________

______________

J U D G M E N T

______________

1.  This is an application to strike out a statement of claim.  The primary ground is that the claim is time-barred.  The alternative is that it should have been brought as part of proceedings HCA9231 of 1997.

2.  HCA9231 of 1997 was a claim brought by a purchaser of premises, called Whale View Investment Limited, against the vendor Kensland Reality Limited.  The agreement between them called for completion on or by 1:00 p.m. on 2 September 1997 at the offices of Kensland Reality’s solicitors Tai Tong and Chong (TTC).  Whale View’s solicitors’ conveyancing clerk arrived with the funds to complete settlement a few minute after 1:00 p.m. on the due date.

3.  Kensland Reality treated that as a breach of the contract and refused to accept the late tender and forfeited the deposit, purportedly on advice from its solicitors TTC.

4.  On 3 September 1997, being the next day, Whale View sued for loss of the transaction.  The matter was tried in the High Court and then taken on appeal to the Court of Appeal followed by the Court of Final Appeal.

5.  At trial the Court found that Kensland Reality as vendor was required, through its solicitors, to give directions to the purchaser’s solicitors as to how the funds for completion were to be made out in reasonable time.  There being no specific terms to that effect, that was an implied term.  In the circumstances the directions were given at 11:13 a.m. on the date for settlement.  The Court found that that amounted to sufficient time for completion to take place by the deadline.  Whale View having not met that deadline, Kensland Reality was entitled to rescind the contract.

6.  On appeal the Court of Appeal agreed with the finding of the Court below that there was an implied term to give the direction on cheques timeously, but found that insufficient time had been given and allowed the appeal; thus in favour of Whale View and against Kensland Reality.  Its judgment was handed down on 23 January 2001.  The Court of Final Appeal did not disturb that appellate ruling though on a different basis.  That difference is not material.  Its judgment was dated 10 December 2001.

7.  Kensland Reality having thus lost, and now in liquidation, by this action filed on 13 January 2004, sues TTC in negligence for the wrong advice it is said was given upon which it acted to its detriment; namely, that Whale View had repudiated the contract and that it could rescind it.  Its claim is for damages which, having regard to a dramatic collapse in the real estate market just after the date for completion, is in excess of $28m.

8.  The giving of wrong advice, or indeed any advice at all, is denied in the pleaded defence.  But that is not for me to consider.  What is, is the defence that the claim is time-barred by virtue of the Limitation Ordinance, for not having been brought within 6 years of the date the cause of action arose, being 2 September 1997 (the date of completion) alternatively 3 September 1997 (the date of the writ).

The Application

9.  This was the defence’s next step, brought on the grounds that the statement of claim is frivolous because of the time-barred point; alternatively, it amounts to an abuse of process; the claim should have been raised in the action brought by Whale View.  These are the matters requiring resolution.

10.  Before embarking on the exercise I remind myself that this is not a trial or an application for determination of a point of law under Order 33 RHC, but an application to strike out.  I repeat verbatim the commentary in the White Book at 18/19/4:-

“18/19/4 Exercise of powers under this rule

(1)          Striking out only in plain and obvious cases – It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  There should be no trial upon affidavit.  Disputed facts were to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.”

The Limitation Ordinance

11.  It is not in dispute that the cause of action accrued from the date upon which the advice was given; that was the completion date, 2 September 1997.  Section 4 of the Ordinance provides that actions founded in tort shall not be brought after the expiration of 6 years from the date on which the cause of action accrued.  Based on Section 4 the liquidators of Kensland Reality have left it too late.  That is what TTC pleaded in its defence and which it now argues renders the claim a frivolous one.

12.  Kensland Reality’s liquidators take no issue with that.  Their opposition to the application to strike out is founded on Section 31 of the Ordinance.  That section states that the period within which an action for damages for negligence must be brought shall be either 6 years from the date on which the cause of action accrued, or three years from the date upon which the plaintiff had both the knowledge required for bringing the action and a right to bring the action.

13.  It is the position of Kensland Reality’s liquidators that the date upon or by which the directors gained that knowledge will require:

“a methodical trawl through the history of this matter to see when the company can first be fixed to have actual or constructive knowledge that the advice it received from TTC was wrong”.

This can only be established after trial.

14.  Further, although once a limitation defence is pleaded it is for the plaintiff to show that his cause of action accrued within the limitation period, the burden in a strike out application is on the defence to prove that the plaintiff has no arguable case.

15.  Putting it another way: it is for the defence to establish there is no prospect of Kensland Reality proving it did not have the requisite knowledge until within 3 years of the date of its writ.

Analysis

16.  What is the requisite knowledge?  Sec 31 subsections (5)(6) and (7) defines knowledge in this way:-

“(5)    In subsection (1) ‘the knowledge required for bringing an action for damages in respect of the relevant damage’ means knowledge-

(a)   of such facts about the damage in respect of which damages are claimed as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against the defendant who did not dispute liability and was able to satisfy a judgment;

(b)   that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence;

(c)   of the identify of the defendant; and

(d)   if it is alleged that the act or omission was that of a person other than the defendant, of the identity of that person and the additional facts supporting the bringing of an action against the defendant.

 (6)    Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (1).

 (7)    For the purposes of this section or section 33 a person’s knowledge includes knowledge which he might reasonably have been expected to acquire-

(a)    from facts observable or ascertainable by him; or

(b)   from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek,

but such a person shall not be taken by virtue of this subsection or section 33 to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

17.  In comprehensive submissions in opposition to the application, Mr Manzoni reminded me of the rationale behind section 31, matching as it does section 14A of the UK equivalent statute, the Limitation Act 1980.  It was a later addition designed to avoid the injustice which might occur where a cause of action accrued by reason of damage of which the plaintiff was unaware.  This was highlighted in the case of Pirelli v Faber [1983] 2 AC, in which it was held by the House of Lords that the date of accrual of a cause of action in tort for damage caused by negligent design or construction of a building was when the damage came into existence, not the date upon which it was discovered or should with reasonable diligence have been discovered.

18.  The amended section had a particular impact on medical misadventure in personal injury cases, when the adverse effect on the patient was slow to emerge.

19.  A useful case involving commercial negligence is Lloyds v Laws [2003] EWHC 873.  This case concerned the limitation period applicable to a cause of action for economic loss to Lloyd’s “Names” arising from negligent misrepresentation.  Cooke J. examined in detail the authorities on the point and concluded:-

“It is clear from the authorities that ‘knowledge’ does not mean ‘knowledge for certain and beyond the possibility of contradiction’.  It does mean however ‘knowledge with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking legal and other advice and collecting evidence’.  The search therefore is for the point at which the Names knew enough to make it reasonable for them to begin to investigate whether they had a case against Lloyds.  The exact particulars of negligence which need to be pleaded or established do not have to be known as long as the essence of the act or omission to which the injury is attributable is known.”

20.  So, applying the principles, the question is: when did Kensland Reality’s directors have reasonable cause to believe that the loss associated with a liability to pay damages was attributable to faulty advice they acted on?

21.  As Mr Manzoni argued, this could not have been before the company knew that TTC’s advice was wrong.  And when was that?  This brought him to the short quote I have already repeated requiring a methodical trawl through the evidence, rendering a strike out application inappropriate for the purpose.

22.  As Mr Bullett submits, once a time-barred defence has been raised it is for the plaintiff to plead and prove that its claim is not time-barred.  He points out that the plaintiff has not pleaded or put forward any evidence on the issue of knowledge at all.  So, how can the Court find it has an arguable case, in the absence of evidence and pleadings?

Findings

23.  There are compelling arguments in support of both points of view which lead me to the conclusion that this is not a plain and obvious situation whereby the action should be brought to a halt forthwith.

24.  That the plaintiff has not pleaded its defence to the limitation point is capable of being remedied by application for leave to file late.  The determination of knowledge of having received wrong legal advice probably coincided with knowledge of loss.  That will not necessarily be the date of completion or the date of the Whale View writ.  After all, the defence of Whale View’s claim was successful after trial.  It probably will depend on advice, perhaps competing advice, given following notice of appeal and progression of the Whale View claim thereafter.

25.  In the circumstances I rule against the application to strike out on the grounds that the action is time-barred.

Abuse of Process

26.  In support of the application it is argued that the claim could and should have been made as third party proceedings in the Whale View action, satisfying the requirements of Order 16 RHC as a claim related to or connected with the subject matter of that action.

27.  As argued by Mr Bullett, if TTC had been joined it could and probably would have introduced evidence going to contemporary conveyancing practice and otherwise would have defended the appropriateness of its conduct and, if given at all, its advice.  As it now is, it is faced with criticism by the Court of Final Appeal and an adverse ruling.  Whilst in these proceedings the trial court would be entitled to come to different findings, realistically this would be practically impossible to achieve.  As he put it, weighty rulings at superior level have already been made on crucial matters.

28.  However, I am not satisfied Kensland Reality should be denied the right to pursue its claim on these grounds.  This is not a res judicata point.  Kensland Reality was being sued; it had a right to defend the claim.  It was not bound to consider the prospect of loss and pursue an indemnity from a third party.  That would have been running two inconsistent cases within the one action.  That would not be impossible to achieve in a belt and braces approach, but might well be regarded as a wrong move tactically.

29.  And the point of law is wholly different.  In the first action the issue stood on whether Kingston Reality was entitled to rescind.  In this action it is whether Kingston Reality was given advice that it could rescind and, if it was, whether such advice was negligent.  The existence of final judgment in the Whale View case does not render a fair trial impossible or even unlikely.

30.  I find the claim is not an abuse of process.

The Outcome

31.  The application is dismissed on both counts.  Costs, nisi at first instance, are to the plaintiff in any event.