WONG WAI LAN v. TAM FUNG LAN SANDRA

HCMP 2704/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2704 OF 1998

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J U D G M E N T

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Introduction

1. This is the judgment of the trial by consent of a preliminary issue between the defendant ("Tam") and the third party ("LWC"). The preliminary issue is:-

"Whether, in the third party proceedings, [Tam] can maintain a claim of damages for negligence in respect of [LWC]'s negligent handling of the sale and purchase of the 1st Property (namely, Flat B-1, 23rd Floor, Kwong Chiu Terrace, Hong Kong) which includes a claim for consequential loss and damage in respect of an abortive sale and purchase of the 2nd Property (namely, Flat H, 6th Floor, Fu Wai Court, Fortress Garden, 23 Fortress Hill Road, North Point, Hong Kong) alleged to be flowing from the said negligence of [LWC]".

2. As will be explained below, for present purpose, the determination of the above issue turns ultimately on the true construction of the ambit of RHC Ord 16 rr 1(1)(b) and (c). The relevant part of Ord 16 r 1(1)(b) is:-

"Where in any action a defendant who has given notice of intention to defend-

...

... claims against [a person not already a party to the action] any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff;

...

then ... the defendant may issue a ... third party notice ..., containing a statement of the nature of the claim made against him and, as the case may be, either of the nature and grounds of the claim made by him or of the question or issue required to be determined" (emphasis supplied).

The relevant part of Ord 16 r 1(1)(c) is:-

"Where in any action a defendant who has given notice of intention to defend-

... requires that any question or issue relating to or connected with the original subject-matter of the action should be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action;

then ... the defendant may issue a ... third party notice ... " (emphasis supplied).

Background Facts

3. The background facts giving rise to this matter are undisputed and can be summarised as follows. Tam was the owner of the 1st Property ("Tam's property"). In March 1998 Tam entered into an agreement with the plaintiff ("Wong") to sell Tam's property to Wong. At around the same time, she entered into another agreement to purchase the 2nd Property ("the new property"). LWC acted for Tam in both transactions.

4. The sale of Tam's property fell through. Wong alleged that Tam had failed to satisfactorily answer the requisitions on title or to show good title. As a result Tam did not obtain payment from the attempted sale of Tam's property and she could not pay for the purchase of the new property.

5. Because Tam breached the sale and purchase agreement, Wong commenced this action against Tam. Tam joined LWC as the third party. LWC admitted liability and interlocutory judgment was entered against them on 11 May 2001 with damages to be assessed.

6. Tam and LWC disagree over whether Tam's loss arising from her failure to complete the purchase of the new property can be included in the hearing for the assessment of damages; hence, the trial of the preliminary issue set out above. Tam's loss in relation to the breach of the agreement for the sale of Tam's property to Wong has been settled by LWC earlier.

The Issue

7. At the beginning of the hearing on 4 October 2002, counsel for LWC asked for leave to file and serve further affidavit evidence relating to out-of-court discussions between the parties' legal advisers. Counsel for Tam indicated that if leave was given to LWC to do so, he may personally need to make an affirmation in response. If that becomes necessary, naturally counsel would have to cease acting as the advocate for Tam. It was ultimately agreed that the parties' arguments be restricted to the ambit of Ord 16 rr 1(1)(b) and (c).

Ord 16 r 1(1)(b)

8. The arguments of LWC can be summarised as follows. Except for the part called "The Rider", the Amended Third Party Notice issued by Tam only refers to Tam's property. "The Rider" states:-

"... [LWC were] ... also retained and instructed by [Tam] to act as her solicitors and legal advisers in and about her purchase of [the new property] from one Yung Kai Hong and Ho Kwok Yee ... and to handle all the matters incidental thereto;

... [LWC] ... [were] well aware that [Tam] required the proceeds of sale of [Tam's property] for the completing [sic] of the purchase of [the new property];

... by reason of the matters aforesaid, [Tam's] sale of [Tam's property] fell through ... As a result, [Tam] could not complete the purchase of [the new property] in that there was no sale proceeds of [Tam's property] to pay the balance of the purchase price ... The Vendor therefore terminated the agreement for sale ... and forfeited the deposits paid by [Tam] ... The Vendor brought legal action against [Tam] in High Court Action No. 3704 of 1999".

Further to the above, LWC refer to the originating summons (in the main action) and submit that Wong's claim has nothing to do with the new property either. Wong has also not made any claim for damages.

9. In these circumstances, LWC contend that Tam's "claim for consequential loss and damage in respect of an abortive sale and purchase of [the new property] alleged to be flowing from the said negligence of [LWC]" does not fall within the ambit of Ord 16 r 1(1)(b). Reliance is placed by LWC on In re Burford [1932] 2 Ch 122:-

"I pause there for a moment to consider what is the history of this matter. At an early period the rule as to third party proceedings was wider, but it was cut down in consequence of difficulties which arose ... But recent cases have once more shown that it might be wise to allow third party proceedings in cases which were not merely claims for contribution or indemnity, but also where there was a claim which arose out of the same subject-matter and where to deny that right would be to put the party to the inconvenience of proving over again the same facts for the purpose of getting the remedy to which he was entitled ...

When I come, therefore, to consider the meaning of clauses (b) and (c) of r. 12, sub-r. 1, I think it is plain that the words 'substantially the same' which appear in both those clauses relate to the facts which have to be examined for the purpose of ascertaining what is the relief or remedy to which the parties are entitled. 'Substantially' must have been put in in order to embrace within the rule something which was not exactly a repetition of the relief or remedy asked for. I think, therefore, that where the same facts have to be conned over in order to ascertain the liability and to give some relief to one or other of the parties, in such a case the rule now provides that it is unnecessary to have separate actions and separate proceedings, but that a third party notice may be served" (emphasis supplied) (p. 137-8);

"... The words 'substantially the same', should, I think, be interpreted as 'the same in substance although not in form', because it is impossible that the issues between the defendants inter se should ever be the same in form as those between the plaintiffs and defendants. The claim by a defendant against his co-defendant must necessarily be a different claim from that of the plaintiff against the defendants. What I think is meant by the rule is that if the claim made by a defendant against his co-defendant is connected with the claim which the plaintiff makes against both defendants, and is one which in the event of the plaintiff being successful will determine which of the two defendants ought to bear the ultimate loss, it is one in which the claim made by the defendant against his co-defendant is substantially the same as that made by the plaintiff against both the defendants within ... the rule" (emphasis supplied) (p. 140-1).

In re Burford was concerned with the construction of Ord XVIA r 12, r12(1)(b) of which for present purpose is the same as Ord 16 r 1(1)(b).

10. The facts of In re Burford were these. The administrators of an estate gave some signed cheques to their solicitors (who acted for the estate). The solicitors filled in and handed one such cheque to a broker for investment purposes. The broker became insolvent and the money was lost. The beneficiaries of the estate sued the administrators and the solicitors to recover the sum. The administrators issued a third party notice against the solicitors claiming indemnity or contribution. They further based their claim on negligence and breach of fiduciary duty on the solicitors' part. The last-mentioned claim sought relief by way of damages, alternatively, compensation of the loss so occasioned. The English court of appeal held (over-turning the first instance decision) that the third party notice was within the third party rules of court.

11. LWC contend that Tam's claim relating to her alleged loss of the bargain about the purchase of the new property falls outside Ord 16 r 1(1)(b) as explained in In re Burford.

12. Tam does not directly address the above contention of LWC. Tam's counsel rather adopts the following line of argument. When Tam applied for leave to issue a third party notice, Tam and LWC were engaged as to whether LWC were negligent. On 30 September 1998, after hearing the parties' submissions, the court granted leave to Tam to issue the third party notice: see the order of Yuen J dated 30 September 1998. Since then, Tam and LWC have stood in relation to each other as if Tam had brought a separate action against LWC. Further, Tam's claim in the third party proceeding has an independent life of its own. This proceeding has created a "lis" between them which will remain to be disposed of by the court even after the main action has come to an end. For the above reasons, it is open to Tam to claim against LWC in relation to the loss of bargain regarding the new property. This line of argument can find support from the passages in Hong Kong Civil Procedure 2002, para. 16/0/2 (see also Ord 16 r 1(3)).

13. The above argument of counsel for Tam appears to imply that once leave to issue a third party notice has been granted, the dispute between the defendant and the third party is at large as if the third party proceeding were an action in its own right. However, this ignores Ord 16 r 6 which provides:-

"Proceedings on a third party notice may, at any stage of the proceedings, be set aside by the Court".

The footnote to that rule in Hong Kong Civil Procedure 2002 (para. 16/6/1) states:-

"The power under this rule enables the third party proceedings to be set aside in a proper case at any stage of the proceedings and on the application of any party to the action" (emphasis supplied).

Further, insofar as it may be necessary to rely on another source of jurisdiction, the court has power under Ord 16 r 4(5) to vary or rescind any directions given earlier in third party proceedings:-

"Any order made or direction given under this rule may be varied or rescinded by the Court at any time".

These provisions are obviously intended to confer a discretionary power on the court to regulate third party proceedings at all stages of those proceedings. At least to this extent, there is a difference between ordinary legal actions and third party proceedings.

14. The argument of Tam has in effect overlooked that the emphasis in Ord 16 r 1(1)(b) is on the relief or remedy claimed in the third party proceeding (compared to the relief or remedy claimed by the plaintiff). The English court of appeal in In re Burford explained that part of the rule to mean:-

"...if the claim made by a defendant against his co-defendant is connected with the claim which the plaintiff makes against both defendants, and is one which in the event of the plaintiff being successful will determine which of the two defendants ought to bear the ultimate loss, it is one in which the claim made by the defendant against his co-defendant is substantially the same as that made by the plaintiff against both the defendants within ... the rule" (emphasis supplied) (p. 140-1).

15. While the construction given by the court in In re Burford adequately covers Tam's claim against LWC for the loss in relation to her aborted sale of Tam's property to Wong, the same cannot be said about her loss in relation to the new property.

16. By reason of the above matters, I agree with the argument of LWC and disagree with that of Tam as regards the applicability of Ord 16 r 1(1)(b).

Ord 16 r 1(1)(c)

17. Tam submits that her claim relating to the new property falls within Ord 16 r 1(1)(c). She submits in essence that there has only been one breach of contract and/or the same act of negligence on the part of LWC, namely, LWC have breached the retainer agreement and/or have been negligent in failing to properly handle Tam's sale of Tam's property, resulting in Tam being in breach of the sale agreement. This tortious act allegedly also gave rise to Tam's loss in relation to her aborted purchase of the new property.

18. If and when Tam succeeded in establishing LWC's said wrongful act(s), the only remaining question would be the quantum of damages suffered by her because of the wrongful act(s). Whether Tam has suffered loss in relation to her aborted purchase of the new property would not involve any additional cause of action, but is purely a question of whether the loss suffered was at the relevant time within the contemplation of, or foreseeable to, LWC (or too remote). For this reason, her claim against LWC regarding the new property should fall within Ord 16 r 1(1)(c). This is because both the main action and the third party proceeding involved (using the words of that rule):-

"...question[s] or issue[s] relating to or connected with the original subject-matter of the action [which] should be determined not only as between [Wong (the plaintiff)] and [Tam (the defendant)] but also as between either or both of them and [LWC (a person not already a party to the action)]" (emphasis supplied).

Had Tam and LWC not admitted their liabilities for the claims respectively in the main action and the third party proceeding, the court would have to determine whether LWC have properly answered the requisitions on title raised by Wong's solicitors, and if not, whether that involved and/or resulted from an act (or acts) of breach of the retainer agreement and/or negligence on the part of LWC.

19. In this connection, I would respectfully adopt what the English court of appeal said at p. 138 of In re Burford, especially the following:-

"...where the same facts have to be conned over in order to ascertain the liability and to give some relief to one or other of the parties, in such a case the rule now provides that it is unnecessary to have separate actions and separate proceedings, but that a third party notice may be served ... ".

Further, the above submissions of counsel for Tam are consistent with the reasoning of Goff J in Myers v. N & J Sherick Ltd and others [1974] 1 All ER 81, 85f to 86c:-

"... Counsel [for the opposing party] says there are no common issues, and provided the defendants do not compromise without the consent of the [solicitors'] firm, but properly fight the action and lose, then the judgment will be conclusive against the firm as to the defendants' liability to the plaintiff and the quantum of damage. In my judgment, however, that is not so. In their claim for breach of duty, the defendants must prove their loss, and the firm, if not brought into the main action as third parties will not be bound by the judgment in it, but will be free to dispute the extent of the defendants' true liability. In particular, in my view, it will be open to the firm to argue afresh the point taken in the defence to the main action ...

In my judgment, there is here 'a question or issue relating to or connected with the original subject-matter of the action' which, subject to the court's undoubted discretion, the defendants are entitled to have determined not only as between the plaintiff and themselves, but also as between themselves and the firm ... " (emphasis supplied).

20. The argument of LWC in response is in brief that even if there is/are "common" question(s) or issue(s), it does not mean that the defendant can make any claim against the third party by way of relief. With respect, I do not see how difference(s) in the relief or remedy sought respectively in the main action and the third party proceeding should be relevant to jurisdiction under Ord 16 r 1(1)(c) (as opposed to discretion: see the Myers case above). Unlike Ord 16 r 1(1)(b), the emphasis of Ord 16 r 1(1)(c) is on the questions or issues which should be determined between the plaintiff and defendant as well as those between the defendant and the third party. Having said that, nothing herein should be taken as in any way indicating that this court considers (as a matter of discretion) Tam's claim relating to the new property should not be included in the third party.

21. To sum up, I agree with Tam and disagree with LWC in relation to the parties' dispute under this heading.

Conclusion

22. To conclude, because I find that Tam's claim relating to the new property falls within Ord 16 r 1(1)(c), the answer to the preliminary issue is in the affirmative. In other words, in the third party proceedings, [Tam] can maintain a claim of damages for negligence in respect of [LWC]'s negligent handling of the sale and purchase of the 1st Property (namely, Flat B-1, 23rd Floor, Kwong Chiu Terrace, Hong Kong) which includes a claim for consequential loss and damage in respect of an abortive sale and purchase of the 2nd Property (namely, Flat H, 6th Floor, Fu Wai Court, Fortress Garden, 23 Fortress Hill Road, North Point, Hong Kong) alleged to be flowing from the said negligence of [LWC].

Costs

23. There is no apparent reason to justify a departure from the usual rule that costs should follow the event. The costs of the trial on preliminary issue up to today be paid by LWC to Tam, to be taxed if not agreed. Tam's own costs are to be taxed in accordance with the Legal Aid Regulations.