FUNG YAU YEE v. C.K. TSE & KAN (a firm)

HCA 1105/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1105 OF 2007

----------------------

----------------------

------------------------

J U D G M E N T

----------------------

1.  This is an application under Orders 14 and 14A.  The plaintiff is the owner of a flat initially sold under the Home Ownership Scheme.  The defendants were the solicitors who represented the plaintiff in purchasing the flat on 29 August 1997.

Liability

2.  The flat was initially purchased by Wong Po Chu and Mak Ping Kiong (Wong & Mak) under the then section 17A of the Housing Ordinance on 20 December 1983.  Since they purchased the flat under section 17A, they were by virtue of then section 17AA subject to the conditions in the then Schedule to the Ordinance.  Those conditions became part of the agreement of sale and purchase and the assignment by which they purchased the flat.

3.  The relevant conditions in the Schedule were:

“1.  Subject to paragraph 4 of this Schedule, the purchaser shall not at any time alienate, convey, charge or part with possession or purport to alienate, convey, charge or part with possession or enter into any agreement to alienate, convey, charge or part with possession of the land sold ... unless —

(a)  either —

(i)  a period of 10 years has elapsed from the date of the assignment to the purchaser; ... and

(b)  the purchaser has first paid to the Authority the amount of the premium calculated under the following formula — ...

4.  Notwithstanding that the purchaser has not paid the premium mentioned in paragraph 1 of this Schedule, he may —

...

(b)  where—

...

(ii)  10 years has elapsed since the date of the assignment,

enter into an agreement for sale and purchase of the land providing it is a condition of such agreement that the premium as assessed by the Director be paid to the Authority prior to assignment and within 28 days of the date of the agreement or within such period as may be otherwise stipulated by the Director.”

The then section 17B further provided for the consequence for breach of the conditions in the sale and purchase agreement and the assignment:

“17B.  Where —

(a)  any land in any estate is sold under section 17A to any person; ...

any alienation or conveyance or purported alienation or conveyance or any agreement to alienate or convey such land —

(i)  by that person in breach of any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to such land; ...

shall be void.”

4.  On 23 May 1994, Wong & Mak entered into a formal sale and purchase agreement with Leung Wai Fun (“Leung”) to sell the flat to Leung.  They further purported to complete the sale by executing an assignment on 10 June 1994.  However, the sale and purchase agreement did not contain the condition as required by condition 4(b) of the Schedule.  Condition 1 of the Schedule and section 17B as referred to above prima facie rendered the agreement void.

5.  Furthermore, the premium payable under condition 1 of the Schedule was not paid before the execution of the assignment on 10 June 1994, but was only paid on 17 June 1994.  Condition 1 and section 17B again prima facie rendered the assignment void. 

6.  Leung on 24 March 1997 entered into another formal sale and purchase agreement with the plaintiff agreeing to sell the flat to her.  The sale was purportedly completed by an assignment dated 29 August 1997.

7.  On 24 March 2006, the plaintiff entered into another formal sale and purchase agreement with Hung Hin Ho and Yiu Wai Yee (“Hung & Yiu”) agreeing to sell the flat to them at $1,240,000. 

8.  On 13 April 2006, the solicitors of Hung & Yiu raised a requisition that the sale and purchase agreement and assignment by Wong & Mak to Leung were void for the reasons mentioned above.  The plaintiff’s present solicitors then sought help from the agent of the defendant on how to answer the requisition.  The defendant by then had already ceased business.

9.  The defendant’s agent replied by admitting that it was unusual to have a discrepancy between the date of the assignment on 10 June and the date of the letter from the Housing Authority acknowledging receipt of the premium on 17 June.  The agent therefore wrote to the two firms of solicitors that represented Wong & Mak and Leung in the 1994 transaction to ask them for supply of documents.  This was done with a view to explain the discrepancy.  However, these firms were uncooperative.  One firm said the file was not located and the other firm refused to answer the enquiry or to provide any document.  Hence, the agent could not provide any document to assist the plaintiff in answering the requisition.  However, the agent in the reply of 2 May 2006 did suggest the following for answering the requisition:

“(a)  The transaction was completed in 1994 and the assessed premium was indeed paid and there is no sign that The Hong Kong Housing Authority or any parties to the said Assignment is to take issue on and challenge the transaction.

(b)  It is a term and condition (implied or express) that the vendor named in the agreement for sale and purchase Memorial No. 641938 agreed and undertook with the purchaser named therein that the assessed premium was to be paid upon completion.  So notwithstanding that the said Assignment was dated 10^th June 1994, we are of the view that the said Assignment is an executory Assignment, that is, the said Assignment was executed but it shall take effect pending payment of the assessed premium by the vendor named in the said Agreement and had taken effect on 17^th June 1994 upon issuance of the Letter for Removal of Alienation Restrictions.

(c)  If the payment of assessed premium was indeed made on 17^th June 1994 which is not sure, the said Assignment was executed in escrow pending the issuance of the Letter of Removal of Alienation Restrictions.  So the Assignment (that is the agreement and intention of the parties thereto implied or express) was to take effect on 17^th June 1994 so that there is no irregularity on the part of the said Assignment.

In this connection, you may consider the above in answering the requisition which is your obligation.  In light of the attitude of the Messrs. ... and Messrs. ..., we cannot assist further.”

10.  By a further letter of 9 May 2006, the agent also suggested that the plaintiff would obtain a possessory title on 15 May 2006 which was the completion date under the sale and purchase agreement dated 24 March 2006.  This suggestion was not entirely correct because the 12 years limitation period only started to count on 10 June 1994 when Leung obtained possession of the flat and it expired on 10 June 2006.  I will discuss this in more detail below.

11.  Hung & Yiu did not accept the answer proffered by the defendant’s agent.  The sale and purchase agreement made on 24 March 2006 was then cancelled on 23 May 2006. 

12.  The Housing Authority has by a letter of 7 March 2007 confirmed that the premium was indeed paid on 17 June 1994.  The plaintiff took out this action against the defendant on 26 May 2007 for negligence.  The plaintiff alleges that the defendant had failed to exercise due care, skill and diligence in advising the plaintiff to accept Leung’s title to the flat when Leung in fact did not have any title.  The reason being that Leung’s sale and purchase agreement and assignment dated 23 May 1994 and 10 June 1994 respectively were void.

13.  The defendant filed a defence on 31 July 2007.  The 1^st ground of defence is the expiration of the limitation period.  That however is not a good ground as the evidence clearly shows that the plaintiff was only apprised of the knowledge required for bringing this action in April 2006 when requisitions were raised by the solicitors of Hung & Yiu.  The plaintiff in this application therefore relies on section 31 of the Limitation Ordinance in answer to the defendant.  The defendant responded by saying that the plaintiff has not pleaded section 31 in its claim.  I do not think the plaintiff should be criticised for not pleading section 31 in the statement of claim as it is not right to anticipate the grounds of defence in the statement of claim.  I am of the view that the plaintiff is entitled to rely on section 31 in this application.  The defendant’s reliance on limitation as a defence therefore fails.

14.  The defendant’s main argument is that Wong & Mak had conveyed a good title of the flat to Leung and hence the plaintiff has a good title to the flat.  The defendant argued that the assignment dated 10 June 1994 was executed in escrow to take effect after the payment of premium on 17 June 1994.

15.  Counsel for the defendant submitted the following in support of his proposition.  Counsel referred to the payment of premium on 17 June 1994 and submitted that the process of assessment must have commenced sometime before 17 June 1994 and in all likelihood before 10 June 1994.  The parties were therefore aware that the flat was subject to the Home Ownership Scheme and it was well-known that a premium had to be paid before any alienation would be effective.  The fact of payment of premium in itself shows that the parties intended to comply with the Housing Ordinance, otherwise, there would have been no cause for them to pay the premium.  The payment of premium and removal of restriction of alienation on 17 June 1994 was before the completion date of 23 June 1993 as scheduled in the sale and purchase agreement.  The assignment, though dated 10 June 1994, was only registered at the Land Registry on 14 July 1994.

16.  Counsel also relied on Wong Yiu Ting v Kwok Wing Chiu & Anor, HCA 729/2008 and HKSAR v Pang Ko Fai, HKC 395 to support his proposition.

17.  In Wong Yiu Ting, the sale and purchase agreement had the following terms:

“(a)  The parties hereby acknowledge that the sale of the Property is subject to the terms and conditions contained in the Schedule to the Housing Ordinance (‘the Scheduled Conditions’).

(b)  It is condition of the Agreement that the premium as assessed by the Director of Housing under the Scheduled Conditions shall be paid by the Vendor solely and that the Premium shall be paid to the Housing Authority prior to the execution of the Assignment of the Property and ... but shall in no case be paid later than the Completion Date.

(c)  The Vendor shall on completion procure the Vendor’s Solicitors to give an undertaking to the Purchaser’s Solicitors to provide with the Purchaser’s Solicitors within 21 days from the Completion Date a Certificate issued by the Housing Authority certifying that the Premium has been paid on or before completion ...

(d)  The Vendor hereby declares that he has already applied to the Housing Authority for assessment of premium ... In the event that the Vendor shall fail to receive the premium assessment from the Housing Authority before the Completion Date, completion of the sale and purchase shall then take place within 10 working days from the Purchaser being notified in writing that premium assessment has been made by the Housing Authority ...”

18.  It is abundantly clear that the parties there were fully aware of the need to pay the premium ahead of completion and intended to do so.  The assignment was then dated 19 January 1998 and the letter acknowledging payment of premium by the Housing Authority was dated 20 January 1998.  Lam J was of the view that the premium could have been paid on 19 or 20 January.  However, there was overwhelming evidence showing that all parties including their solicitors intended to comply with section 17B of the Housing Ordinance.  Thus, even if the assignment was indeed executed before the payment of premium, the parties must have intended the assignment to take effect only after the premium had been paid.

19.  In Pang Ko Fai, the owner had at one time entered into a sale and purchase agreement containing the following term:

“The vendor [appellant] and the purchaser hereby declare and confirm that the said premises are sold subject to the terms and conditions contained in the schedule to the Housing Ordinance Cap.283, which, inter alia, prohibits the sale of the said premises unless the premium calculated ... has been paid to the Hong Kong Housing Authority.”

20.  The owner did not complete the sale but rescinded the agreement.  He later executed a mortgage of the premises on 30 September 1997, but the premium was only paid to the Housing Authority on 9 October 1997.  Deputy Judge Gill found that the mortgage was merely executed in escrow.  Delivery of the mortgage took place on 9 October 1997 when the premium was paid.  That was also the date when the loan secured by the mortgage was available and part of it was used for paying the premium.

21.  The facts of the present case are very much different from those in the two cases.  The sale and purchase agreement made by Wong & Mak with Leung did not mention the terms and conditions in the Schedule of the Housing Ordinance at all.  That means the agreement was prima facie void.  Counsel for the defendant then submitted that the agreement was also executed in escrow to take effect after payment of premium.  But there was no apparent purpose for entering into this agreement if it was only to take effect simultaneously with the assignment after payment of premium.  The defendant also did not suggest any reason why the parties should have done so.  Furthermore, if the agreement should have contained the condition as required by condition 4(b) of the Schedule, then it could have taken effect immediately upon signing. 

22.  It was thus more likely than not that those who were handling the transaction were ignorant or had overlooked the relevant conditions in the Housing Ordinance and in the Schedule which required the payment of the premium ahead of completion.  It seemed that the only thing they were aware of was just the need to pay the premium which was indeed paid.  But I cannot even tell when did they become aware of the need. 

23.  Even if the process for assessing the premium might have started before the execution of the assignment on 10 June 1994, that did not mean that the persons handling the transaction were aware of the need to pay the premium before alienation of the interest in the flat by Wong & Mak.  The fact that the sale and purchase agreement appeared to be void for want of any condition required by condition 4(b) of the Schedule is proof of their ignorance.

24.  The fact that the premium was paid on 17 June and was before the originally scheduled completion date of 23 June is also neither here nor there.  There is no suggestion that the assignment was executed in escrow on 10 June pending completion on 23 June.  There was also no apparent reason for the sale to have been completed this way.

25.  Regarding the registration of the assignment, a copy of the particulars of registration of the flat obtained from the Land Registry on 30 July 2008 has been produced.  It shows that 10 June 1994 was treated as the date of the assignment.  The assignment was indeed registered on 14 July 1994.  This means that the assignment was registered outside the one-month period after execution.  Its priority therefore could not be related back to the date of execution pursuant to section 5 of the Land Registration Ordinance.  If anything, this might simply be another indication that the transaction was not handled by those responsible with the high standard of professionalism that was expected by their clients.  It certainly does not support the defendant’s case that the assignment was executed in escrow to take effect after payment of premium.

26.  Since the defendant in this application has the obligation to condescend on the particulars of the defence, but the relevant files of the two firms of solicitors which represented Wong & Mak and Leung have not been made available, I therefore offered an option for the defendant to have the hearing adjourned so that the files could be made available by subpoena.  I gave the defendant this option because I should not grant leave to defend on the basis that these files could be made available at the trial and they may contain good grounds of defence.  However, the defendant, having considered the matter, chose to proceed on the basis of all the evidence before me.  I therefore make no assumption that those files would contain anything that would add to what is already before me.

27.  In the light of my discussion of the grounds put forward by the defendant, I do not think the defendant has made out any case that the assignment was executed in escrow pending payment of premium.  I do not think that this is an issue which ought to be tried.

28.  I also hold that the defendant was negligent because the responsible solicitor, when representing the defendant in the purchase from Leung, failed to discover that the Housing Authority’s letter acknowledging payment of premium from Wong & Mak was issued after the making of the sale and purchase agreement and the assignment.  I also note that there is no evidence to suggest that the responsible solicitor at the time had regarded the agreement and the assignment as having been executed in escrow pending payment of premium.  There is also no other reason which would require this action to be tried.  I therefore give judgment to the plaintiff on liability under Order 14 of the Rules of the High Court.  It is unnecessary to consider the application under Order 14A.

Quantum

29.  Counsel for the defendant has referred to Sze To Chun Keung v David Kung [1997] HKLRD 885, Jourdan Adverse Possession (2003) para. 6-29, Re Atkinson and Horsell’s Contract [1992] 2 Ch.1 and Chan Chu Hang v Man Yun Sau [1997] 2 HKC 144 at 149C to 150H.  Counsel rightly submitted that a good title can be partly documentary and partly possessory. 

30.  Insofar as the title prior to 10 June 1994 is concerned, it is proved by documents.  It started from new Grant No. 2388.  The grantee sold the flat to Wong & Mak.  Paper title stopped when Wong & Mak purportedly sold the flat to Leung.  Since Leung obtained possession of the flat on 10 June 1994, thinking that she was its owner, she was then in adverse possession.  The plaintiff continued the possession since August 1997 under the same belief.  She did so until the raising of requisition by the solicitors for Hung & Yiu in April 2006.  She then became aware that she had no title.  She then knowingly occupied the flat as an adverse occupier.  Title by adverse possession completed by 10 June 2006. 

31.  The title of the flat is thus partly documentary and partly possessory.  Good title is traced down to Wong & Mak up to the point when they purportedly disposed it to Leung.  The lack of title of Leung and subsequently of the plaintiff have now been cured by adverse possession.  On the authorities above-mentioned, the plaintiff has a good title to the flat since 10 June 2006 and I so declare.

32.  Regarding assessment of damages, the defendant accepts that in the usual case, the date for assessment is the date of the relevant transaction.  That is 29 August 1997.  However, the defendant referred to Kennedy v Van Emden [1996] PNLR 409 and invited the court to pay regard to the reality.  Nourse L. J. said at 414B to C of Kennedy:

“My own view of the matter is that damages are to be assessed in the real world.  Compensation is a reward for real, not hypothetical, loss.  It is not to be made an occasion for recovery in respect of a loss which might have been, but has not been, suffered.”

33.  Schiemann L. J. also said at 419D to F:

“The overriding rule governing the awards of damages is that the party who has been injured should be awarded by the court a sum of money which, in so far as money can do this, will, when it is paid, fairly compensate him for the wrong which the defendant ahs inflicted upon him.  That will often involve looking at what happened or might have happened shortly after the defendant’s breach of duty, what has happened between breach and trial and what is likely to happen in the future.  ...  The court, when making its award, will look at all factors known to it at the time of judgment.”

34.  I agree with these statements.  The plaintiff has been living in the flat since her purchase of it.  She did not know about the lack of title until about 13 April 2006.  She had not suffered any loss prior to that.  She has also obtained a good title to the flat on 10 June 2006.  She should therefore be compensated for her actual loss since 13 April 2006.

35.  The plaintiff’s sale of the flat was scheduled to be completed on 15 May 2006.  That sale was however cancelled.  She thus suffered the loss of the use of the purchase price by reason of lack of title from 15 May 2006.  Her title became good on 10 June 2006.  So she should be compensated by the defendant for the loss of use of the money during this period.  The parties have agreed that this loss should be calculated as follows:

$1.2 million x 26/365 x interest rate

I order that the interest rate be the judgment rate.

36.  The plaintiff should also be compensated for the wasted costs she incurred for the aborted sale.  The parties have again agreed that the defendant should pay the plaintiff $3,000 for wasted agency fee and $12,010 for wasted conveyancing costs.

37.  Finally, the plaintiff should have the costs of this application.  The parties have agreed the sum at $60,000 and I so order.