LIU CHUNG FAI AND ANOTHER v. TIN SHUI WAI DEVELOPMENT LTD AND ANOTHER

HCA 1482/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1482 OF 2003

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HCA 1887/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1887 OF 2003

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BETWEEN

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HCA 4600/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4600 OF 2003

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BETWEEN

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HCA 4602/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4602 OF 2003

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BETWEEN

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HCA 4607/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4607 OF 2003

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BETWEEN

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HCA 4610/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4610 OF 2003

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BETWEEN

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HCA 4614/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4614 OF 2003

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BETWEEN

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HCA 4655/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4655 OF 2003

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BETWEEN

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HCA 4663/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4663 OF 2003

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BETWEEN

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HCA 4664/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4664 OF 2003

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BETWEEN

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HCA 4668/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4668 OF 2003

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BETWEEN

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HCA 4669/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4669 OF 2003

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BETWEEN

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HCA 4671/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4671 OF 2003

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BETWEEN

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HCA 4677/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4677 OF 2003

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BETWEEN

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HCA 4681/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4681 OF 2003

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BETWEEN

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HCA 4686/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4686 OF 2003

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BETWEEN

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HCA 4733/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4733 OF 2003

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BETWEEN

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HCA 4734/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4734 OF 2003

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BETWEEN

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HCA 4735/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4735 OF 2003

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BETWEEN

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HCA 4736/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4736 OF 2003

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BETWEEN

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HCA 4737/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4737 OF 2003

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BETWEEN

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HCA 4738/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4738 OF 2003

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BETWEEN

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HCA 352/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 352 OF 2004

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BETWEEN

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HCA 730/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 730 OF 2004

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BETWEEN

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HCA 732/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 732 OF 2004

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BETWEEN

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HCA 1048/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1048 OF 2004

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BETWEEN

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HCA 1049/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1049 OF 2004

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BETWEEN

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R U L I N G

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1.  The housing development known as Maywood Court, Kingswood Villa, Tin Shui Wai has spawned a number of High Court actions between individuals or families who entered into sale and purchase agreements, following a standard form approved by the Government under the Consent Scheme, for uncompleted units in the eight housing blocks there.  The agreements did not proceed to completion, and litigation ensued.  In some cases, the purchasers claim against the developer, Tin Shui Wai Development Ltd (“TSW”), for breach of contract, and/or they claim against the solicitors, who acted for both vendor and purchaser in the transactions, for professional negligence.  In some of the transactions those solicitors were Baker and Mackenzie (“BM”) and in others Stikeman Elliott & Co. (“SE”).  In other cases, TSW sued the purchasers, who issued third party proceedings against the solicitors.

2.  Before me on 3 May 2006 came no less than 29 summonses, all issued on 1 September 2005 in different actions, and all involving TSW and one or other of the firms of solicitors.

3.  In HCA 4610 of 2003, the plaintiffs, Lau Chung Fai and Lam Man Yee, claim against TSW and BM, and in HCA 4737 of 2003, the plaintiffs, Kan Moon Tong Danny and Lau Wing Fong claim against TSW and SE.  In both these actions, the solicitor defendants apply for the determination of a preliminary issue.  In the other 27 actions their application is for the action to be stayed pending the determination of the preliminary issue.

4.  In all the above cases, the solicitor defendants are represented by Mr Scott, SC.  In Action 4610, Mr Chan SC represents the plaintiffs, and Mr Yu SC represents TSW.  In Action No. 4737, the plaintiffs are in person and were not present at the hearing before me; but that matters not, for they are in exactly the same position, vis-à-vis SE as are the plaintiffs in Action No. 4610 vis-à-vis BM.  Since the facts are essentially the same, and only the solicitors are different in the two actions, I will only refer in this ruling to HCA 4610.

5.  In Action No. 4610, TSW applied by summons dated 25 August 2005 to strike out the plaintiff’s Statement of Claim and Reply and Defence to Counterclaim, on all four grounds mentioned in Order 18 Rule 19 of the Rules of the High Court.  This summons was to come on before me on 1 June 2006.  It was agreed that I should defer giving my ruling on the summonses heard on 3 May 2006 until after that hearing.

6.  Only one of the applications for stay was opposed, and that was in HCA 1887 of 2003, in which the plaintiff, Cheng Chi Lung, represented by Mr Merry, sues BM alone.  The other purchaser-respondents were not present or represented.  In some cases the main action had been settled; in some, the respondents had agreed to the stay sought; some respondents could not be traced; and some, though notice had been served, simply did not attend.

The background facts

7.  The units in Maywood Court were sold under the Consent Scheme.  In 1985, TSW had obtained the grant of the land which was to be developed in stages as Kingswood Villas.  The Conditions of Grant provided that TSW might, upon obtaining the prior written consent of the Registrar General, and subject to such terms and conditions as he saw fit, enter into agreements for the sale and purchase of the undivided shares in the lots of land.  In May 1997, TSW obtained the requisite consent to enter into agreements for the sale and purchase of residential units and car parks in Maywood Court. 

8.  On 8 October 1997 the plaintiffs entered into an Agreement with TSW for the pre-sale of a residential unit in “the Development”.  The terms of the Agreement followed the standard form under the Consent Scheme, which was jointly established by the Government and the Law Society for the sale of units in uncompleted residential buildings.  The “Development” is defined as :

“the residential units and carparking spaces being constructed or to be constructed on the land in accordance with the building plans and intended to be known as Blocks 1, 2, 3, 4, 5, 6, 7 and 8 of Maywood Court of Kingswood Villas”.

9.  By Clause 4(1)(c) of the Agreement, the vendor, TSW, was required to complete the Development by 31 December 1997, plus any extension of time granted by the Authorised Person.  By Clause 4(4(a), if the vendor failed to do so the purchaser was at liberty to rescind the Agreement within 28 days thereafter, but if he did not do so, then by clause 4(4)(b) he was deemed to have elected to wait for completion.  By clause 4(4)(c) the vendor then had a further 6 months to complete the Development, and again, if it did not, the purchaser had the option to rescind.  The sub-clauses also contained provisions as to interest.

10.  Clause 4(5) governed extensions of time by the Authorised Person, but in any event the vendor had to notify the purchaser within 14 days of any such extension, in writing with a copy of the certificate of extension.  In fact, no extensions were granted.

11.  By Clause 5, completion of the sale and purchase was to take place within 1 month of the issue of the Certificate of Compliance or the consent of the Director of Lands to assign, whichever should first happen.  By Clause 4(7) the issue of such Consent to Assign was to be conclusive evidence that the Development had been completed or was deemed to be completed.

12.  On 22 December 1997, the Authorised Person issued a certificate that the Development had  been completed in all respects in compliance with the Government grant and the building plans.  On the same date the Building Authority issued the Occupation Permit.  The following day TSW’s solicitors applied for the Consent to Assign.

13.  In all the cases concerned, the purchasers did not exercise their option to rescind within 28 days of 31 December 1997, and therefore were deemed to have elected to wait for completion of the Development at least until 30 June 1998, when the next option arose.

14.  On 4 June 1998, TSW gave an undertaking to Government in respect of the completion of minor external finishing works, minor landscaping works and minor internal finishing works at the common area of the Lot, and provided a bank bond in support.

15.  On 17 June 1998, the Director of Lands gave his Consent to Assign.  TSW on 3 July 1998, through its solicitors, called on the plaintiffs to complete the purchase.  But this did not happen.  A final notice was given on 1 August 1998 by BM.  No completion ensued and TSW, through BM, on 30 September 1998 gave notice of determination to the plaintiffs, pursuant to Clause 16(1) of the Agreement.

16.  In the other cases with which I am concerned here, the purchasers are all in the same boat.  They were called upon to complete, once the Consent to Assign was issued, but they did not.

17.  It is common knowledge, and the plaintiffs plead that the property market in Hong Kong had suffered a severe downturn by July 1998.  In fact, as is well known, it went down before that.  The property was probably worth a lot less, by December 1997, than the contract price.   

The plaintiffs’ claim against TSW

18.  Essentially the plaintiffs’ claim is that, when called upon to complete following the issue of the Consent to Assign, they were not obliged to do so.  The Development was not, as a matter of fact, completed by 31 December 1997, so the right to rescind within 28 days arose; but they did not exercise it, because of misrepresentation and/or breach of implied terms of the Agreement.  Because of these and other faults on the part of TSW, the plaintiffs were not obliged to complete when called on to do so in July 1998.  There are many other grounds which appear in the original pleadings and the proposed amendments, but I do not need to set them all out here.

19.  The plaintiffs claim a declaration that TSW had been in repudiatory breach of the Agreement by failing to complete the Development by 31 December 1997; a declaration that the Agreement had been validly terminated by the plaintiffs pursuant to clause 4(4)(a) or that they had accepted TSW’s repudiation; and return of the deposits paid, of $1,347,300.

20.  I dealt with the grounds of the plaintiffs’ claim, as they appear in the original Statement of Claim and in the proposed amendments, in my ruling on TSW’s strike-out application, so I need not deal with them here.  I have allowed that application, on the basis that the pleadings disclose no reasonable cause of action, and have refused the plaintiffs’ applications to amend on the grounds that they do not cure the deficiencies in the pleadings.

The plaintiffs’ claim against BM

21.  The plaintiffs claim that it was a term of BM’s retainer as solicitors for the plaintiffs that they exercise reasonable care and skill, alternatively that they owed the plaintiffs such a duty under common law (tort of negligence).

22.  In particular they say that it was BM’s duty to properly advise the plaintiffs of the meaning and effect of the terms of the Agreement, and to take such steps as were necessary and practicable to ensure that the right of rescission under Clause 4(4)(a) was not nugatory.  In particular this included duties

(i)      to remind the plaintiffs in December 1997 and within 28 days from 31 December 1997 of the relevant clauses,

(ii)     to advise them that proper enquiry should be made in that period as to the state of completion of the Development when, within that period there was no written confirmation from TSW as to completion of the Development and no notice to complete the purchase and sale;

(iii)    to inform the plaintiffs in time, when TSW failed to complete the Development in accordance with clause 4(1)(c); and

(iv)   to advise the plaintiffs that they could exercise their right to rescind under Clause 4(4)(a), in particular in the falling market, of which BM ought reasonably to have known.

23.  The plaintiffs plead that BM failed in these duties, and that if they had not done so, the plaintiffs would not just have waited for further notice, but would have made further enquiry and would, in the absence of confirmation that TSW had complied with clause 4(1)(c), have rescinded the Agreement within the 28 days allowed.

24.  In the amendments, the plaintiffs further plead that if, which is denied, “Development” did not include work still outstanding after 31 December 1998, or did not include the common areas for which there were works till to be completed, BM failed in their duty to properly consider and advise the plaintiffs of the risks to which they might be exposed thereby, and failed to advise of any alternative drafting of the relevant clauses.  Further, they failed to advise the plaintiffs of TSW’s breach of Clause 10(e) of the Agreement, not completing outstanding common facilities by 31 December 1997, and they failed to assert this breach on the plaintiffs’ behalf.  Accordingly the plaintiffs claim against BM for an indemnity for any sums they may be held liable to pay to TSW, and for damages. 

BM’s defence

25.  The essence of BM’s defence is as follows.  In respect of the completion of the Development, BM rely on the facts that on 22 December 1997, the Building Authority issued the Occupation Permit, and the Authorised Person certified that the Development had been completed in all respects in compliance with the Grant.  On 23 December, Messrs Woo, Kwan, Lee and Lo, on behalf of TSW applied for consent to assign the units in the Development.  This consent was granted on 17 June 1998.  By clause 4(7), the Consent to Assign is conclusive evidence that the Development was completed or was deemed to be completed for the purpose of clause 4.  In the premises, say BM, the Development as defined in the Agreement was completed in accordance with clause 4(1)(c), i.e. by 31 December 1997.  Therefore, no right to rescind arose.

26.  BM admit they owed the duties to exercise reasonable care and skill to be expected from a normally competent and careful practitioner, under the retainer and at common law.  They say that they interpreted the material terms of the Agreement to the plaintiffs before the plaintiffs signed it, at their offices.  They also explained clearly to the plaintiffs that if TSW failed to complete the Development by 31 December without any extension granted by the Authorised Person, the plaintiffs would be entitled to choose not to purchase the Property, but recover their deposit with interest.  They explained to the plaintiffs that “completion” meant factual completion, not the date of issue of the Certificate of Compliance or the date on which they would be given possession of the Property. 

27.  They say that they had no duty to remind the plaintiffs of clauses 4(1)(c), 4(4)(a) and 4(4)(b) of the Agreement; they had no duty to advise the plaintiffs that enquiry should be made as to the state of completion of the Development, and they had not duty to inform them that it had not been completed, which is in any event denied.

28.  There are other points which I need not repeat here, because the important consideration for this ruling is that essentially there are two factual issues which will have to be tried as between the plaintiffs and BM, namely the actual state of completion of the Development as at 31 December 1997, and the advice which BM say they gave.  The other issues are concerned with documents, interpretation, and legal issues.

The preliminary issue

29.  In HCA 4610 and HCA 4737 the solicitor defendants apply for an order that :

“The following questions of law and fact, be tried as a preliminary issue :

(a) whether the Development, as defined under clause l(l)(f) of the Sale and Purchase Agreement dated 7 June 1997 between the Plaintiff as the purchaser and the 1st Defendant as vendor (“the Agreement”), was complete pursuant to clause 4(1)(c) of the Agreement as at 31 December 1997; and

(b) whether a right of rescission pursuant to clause 4(4)(a) of the Agreement accrued to the Plaintiffs on 1 January 1998.

Principles

30.  The general rule was expressed in the judgment of the Court of Appeal in Telford Development Ltd v. Shui On Construction Co. Ltd [1990] 2 HKC 110 at 117, wherein Bokhary J (as he then was) observed :

“The general rule is that all the issues in a case are to be tried at one and the same time.  There is power to order that different issues in a case be tried at different times.  But that departure from the general rule is ordered only if it is just and convenient and it is, of course, for the party who seeks such a departure to demonstrate that it is indeed just and convenient.”

31.  Historically the courts have been reluctant to order the trial of preliminary issues; see Tilling v Whiteman [1980] AC 1.  Mr Scott suggests that this reluctance has been modified by more recent techniques of modern case management.  Nevertheless the general rule as set out above has been affirmed by Waung J in Chan Jak Tung (t/a Forward & Co) v Baltrans Ltd [1997] 1 HKC 89, Stone J in Mohawk Inc. & Ors v Swire Insurance Ltd, HCCL 247B of 1987 and Le Pichon JA in Mai Gou v Mak Chik Lun [2001] 3 HKLRD 248.

32.  I am obliged to counsel for their very full written and oral arguments.  I have considered all the points raised and do not propose to enumerate them in detail here.  I make the following observations.

The relationship of the various Actions

33.  The only cases in which the preliminary issue is sought are Actions Nos. 4610 and 4737.  The other cases, in which stay is sought, are totally separate.  In only one of these is the plaintiff present and represented, namely Action No. 1887.  According to Mr Scott, what the solicitor defendants seek is some kind of test case in circumstances in which they cannot apply for joinder, so as to have a fundamental crucial issue resolved early, and therefore avoid expense and court time.  However, whatever the Court of First Instance decides on that issue will not bind the others, at any rate until the decision is affirmed on appeal.  So there are really two separate matters to be considered; whether it is just and convenient to order trial of the preliminary issue in Actions 4610 and 4737, and whether the other actions should be stayed to await the outcome.  As indicated, I refer here only to Action 4610; Action 4737 follows on. 

Application for trial of preliminary issue in Action 4610

34.  Now that I have allowed TSW’s application to strike out, subject of course to any successful appeal against that decision, two issues remain for trial, namely whether the Development was completed by 31 December 1997, and whether BM (or SE) were negligent. 

35.  Looking first at convenience, Mr Scott estimated that trial of the first issue should take about two days, as against perhaps ten days (in each of the live actions) for the trial of all the issues.  That was at the stage when all the plaintiffs’ issues against TSW were still alive.  We may now assume that the time would be less for a full trial in Action 4610. 

36.  The solicitors appear to rely primarily on documents as proving completion.  But the plaintiffs wish to bring factual evidence.  Given that the 2^nd plaintiff has given a witness statement for the purposes of Action no. 1887, it seems likely that common witnesses in both cases would swell the ranks of the plaintiffs’ witnesses here.  I believe there are five such witnesses in that action.

37.  Mr Chan further says that the plaintiffs expect to apply for discovery and interrogatories.  Given that in the case of Yau Chin Kwan and Yuen Suk Kuen v Tin Shui Wai Development Ltd, HCA 11520 of 1999 I ordered specific discovery in relation to the question of the completion of the Development, and that decision was upheld on appeal (CACV 247 of 2001), Mr Chan expects that any application for specific discovery of the same material in this case would be successful.  This in turn might extend the time necessary for trial.  He said that it could take more than five days, for the trial of the issue as to completion.  If this is right, we are unlikely to see a fixture in less than about 18 months, even for the preliminary issue.

38.  The issue as to solicitors’ negligence in Action 4610 may be expected to take less time at trial.  The evidence for the plaintiffs, as to what transpired when they signed the Agreement, will come from themselves, and that for BM will presumably come from the staff member named in their Defence.  So if that evidence takes another couple of days, we are probably looking at the same sort of time estimate for reaching trial, as we are if the completion issue were to be tried on its own.

39.  For that reason alone, there seems to be no good reason for a split trial.  The plaintiffs will have to come back, if the first issue is decided against them; the decision on that issue may be appealed, whichever way it goes; costs are likely to escalate.  The escalation of costs is itself likely to produce injustice. 

40.  There are also, of course, the obvious objections that if there is a split trial and the plaintiffs win on the completion issue, they will have to come back and prove the negligence claim.  The solicitors will no doubt appeal; this will increase the delay.  If the plaintiffs lose on the completion issue they will no doubt appeal also.  If they win on the appeal, they will still have to come back and prove the negligence claim.  Either way there will be very substantial delay, which will increase the risk that a fair trial will not be possible, because memories have faded, or because witnesses are no longer available.  There is also the obvious objection arising from the stress of continued litigation.  These latter two points were raised by Mr Merry on behalf of the plaintiff in Action No. 1887, but they apply equally in this case.

41.  For these reasons, I refuse the solicitors’ applications for trial of the preliminary issue in Actions HCA 4610 and 4737. 

Stay of other proceedings

42.  Since there will be no trial of the preliminary issue, there is no reason to stay the other proceedings pending such trial, which is the order for which the solicitors have applied.  In any event, Mr Scott seemed to accept that if I had made the order sought by the solicitors, there might be no real need for a stay, because all the other litigants were waiting to see what happened, rather than pressing ahead with their cases.

43.  As to Action no. 1887, Mr Merry argued with some force that his client should not be blocked from going ahead with his action, which could be set down; application to set down had been refused, pending the hearing of the solicitors’ applications.  If I had ordered a trial of the preliminary issue I would have been inclined to refuse a stay in Action no. 1887 in any event.

44.  As it is the various applications for stay are dismissed.

Directions and costs

45.  Directions will now need to be given.  At the end of the hearing it was agreed that the directions hearing be adjourned to a date to be fixed.  This is ordered.  It was also agreed that I would hear the parties on costs in respect of all the summonses, and this should be done at the directions hearing.  I have indicated in my ruling on the strike-out and related applications, in which I made a costs order nisi, that if there is any further application on costs, that should be heard at the same time.