KO MING BOR AND ANOTHER v. LO & LO (A FIRM)

IN THE COURT OF APPEAL

1996, No. 41
(Civil)

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

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

J U D G M E N T

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

Mayo, J.A.:

1. This is an appeal against a determination made by Keith, J. on a preliminary issue. He held that the plaintiffs' cause of action arose on 4 October 1993 subject to various other observations he made.

2. The facts were as follows.

3. In 1964 the appellants acted for the vendor and purchaser of shop premises at Mok Cheong Street, Kowloon. The vendor of the property was Chung Nam Land Development Company Limited and the purchaser was Madam Lam Kwan Sze. Shortly before her death in February 1980 Madam Lam appointed the respondents as the Executors of her last will.

4. The respondents entered into a Sale and Purchase contract with Perfectime Limited for $7.08 million. Perfectime's solicitors raised a requisition on the respondents' title to the premises.

5. When the deed of assignment had been executed by Chung Nam only one Director had appended his signature witnessing the affixing of the company seal to the deed. The Articles of Association of the company provided that two Directors were required to append their signatures in such a situation.

6. As the respective solicitors were unable to resolve this impasse a vendor and purchaser's summons was issued by both parties which became returnable before Yam J. He held that the respondents had failed to adduce a good title and ordered that the deposit which had been paid by Perfectime must be returned to them and they must be compensated the cost of investigating the title to the premises.

7. Shortly following this the appellants arranged for Chung Nam to execute a confirmatory deed ratifying the said sale to the respondents. This was done in September 1994.

8. Thereafter the property was sold to another party for $6 million.

9. Put in simple terms what Keith, J. had to determine was whether the plaintiffs cause of action arose in 1964 at the time of the said conveyancing transaction or whether it arose at some later date such as when it became apparent that the title to the property may be defective.

10. Keith, J. approached the problem by considering separately what he described as being the acts and omissions in 1994 and those which arose in 1964.

11. He took section 4(1)(a) of the Limitation Ordinance, Cap 347 as his starting point and held that the various acts and omissions which had occurred in 1994 were not limitation matters and that being the case it was inappropriate for him to concern himself with them.

12. While this may be true it does rather beg one of the important questions which has to be answered. On the material which was before the judge it is not easy to see how any of the acts or omissions complained of amount to a cause of action. As the statement of claim is drafted it would appear that no such cause of action had been made out.

13. I will however deal with this aspect of the matter later in this judgment.

14. So far as the 1964 acts and omissions were concerned Keith J considered four recent English cases and concluded that it was possible to extract from these cases what he described as "the remediability principle".

15. In the Headnote which was prepared by Keith, J. he described this "principle" in this way.

"If a negligent act or omission can be remedied at no or minimal cost, the act or omission cannot cause actual loss until the last date on which the act or omission can be remedied, unless the failure in the meantime to remedy the act or omission can be said to give rise to actual loss, in which case the actual loss arises on the date of that failure. On the other hand, if the act or omission cannot be remedied at no or minimal cost, the actual loss arises on the date of the act or omission, even though the quantum of that loss involves a high degree of speculation. ('the remediability principle')"

16. In applying the "principle" to the present case the judge was of the opinion that the defect in title could readily have been made good at minimal cost and that being the case time only started to run on the appellants failure to rectify the situation. This being the case he held that the plaintiffs had only suffered a potential damage rather than actual damage.

17. The four cases relied upon by Keith, J. were (1) Baker v. Ollard & Bentley (1982) 126 S.J. 593; (2) Forster v. Outred & Co. [1982]1 WLR 86; (3) D.W. Moore & Co. v. Ferrier [1988]1 WLR 267; and (4) Iron Trade Mutual Insurance Co. Ltd. v. J.K. Buckenham [1990]1 All ER 808.

18. It has to be said immediately that the facts of all of these cases are readily distinguished from the facts of the instant case.

19. It is not however necessary to undertake an analysis of these cases as there is a more fundamental reason why this "principle" cannot be supported. It is directly contrary to the principles laid down by the Court of Appeal when considering a whole line of authorities on this subject in Bell v. Peter Browne Co. [1990]2 QB 495.

20. The facts of that case were that a husband consulted a firm of solicitors in relation to his matrimonial affairs. An agreement was struck with the wife to the effect that he would convey to his wife his interest in the matrimonial home and the wife would hold the property subject to a 1/6 interest in the property in favour of the husband. After the property was conveyed to the wife the solicitors failed (a) to draw a trust instrument evidencing the husband's interest and (b) to register a caution at the Land Registry putting a potential purchaser on notice of the husband's interest. The wife transferred the property to a third party after the period of limitation had expired from the date of the conveyancing transaction. The court specifically considered the question as to whether omission (b) could be treated in a different manner to omission (a). Also more importantly it laid down the principles applying to such situations. Nicholls LJ said this at p503.

" Failure (b) comprised the solicitors' omission to protect the plaintiff's interest by making an appropriate entry in the land register. This failure stands on a different footing from failure (a) in that it was within the plaintiff's own power to remedy failure (b) so long as the house continued to belong to his former wife. So long as she did not sell or mortgage the property, he could protect his interest by taking the simple step of lodging a caution. To do so he did not need her consent or co-operation.

Is this difference material? On the one hand the plaintiff, in the case of failure (b) as much as in the case of failure (a), did not receive the protection he ought to have received when he executed the transfer and parted with his title to the house. He was at risk, from the outset. His interest was vulnerable. On the other hand, so long as the plaintiff's wife did not deal with the property, failure (b) could easily be put right and at little expense and, had it been remedied, the failure to lodge a caution promptly in 1978 would have caused no financial loss to the plaintiff.

I am unable to accept that remediability puts failure (b) on the other side of the line from failure (a). The solicitors' breach of duty in 1978 was remediable by the plaintiff, but that was only possible after he became aware that there had been a breach of duty. Apart from any other consideration, to treat the plaintiff's ability to remedy the breach himself without the concurrence of his former wife as a ground of distinction between this case and cases such as Baker v. Ollard & Bentley, Court of Appeal (Civil Division) Transcript No. 155 of 1982 would be to disregard the unlikelihood in practice of the plaintiff ever being in a position to remedy the breach. Once the solicitors closed their file, it was unlikely that failure (b) would come to the notice of the plaintiff or the defendants, until the house was sold and it was too late. That, on the pleaded facts, is exactly what happened. The first the plaintiff knew that his one-sixth share was not properly protected was after it had gone beyond recall. So his ability to remedy the breach before the house was sold was a matter of more theoretical interest than practical importance.

In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitors' default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the defendants the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible."

21. These observations were fully supported by the other members of the court.

22. Beldam LJ said at p510:

" I can see no ground for distinguishing the present case. Due to the defendants' negligence, the plaintiff parted with his legal estate in the property conveyed to his wife in exchange for an equitable interest in the proceeds of sale. That equitable interest until secured by a charge or acknowledged by a deed of trust was clearly less valuable to the plaintiff. Unprotected against the interests of third parties by registration of a charge or of a caution, it was less valuable still. I consider therefore that the plaintiff's cause of action arose when he parted with his property or at the latest at the time when the careful solicitor would have affected registration either of a charge or of a caution."

and Mustill LJ said at p513:

" As to the claim in tort, I have little to add. The transaction caused the plaintiff to exchange his valid legal estate for an equitable interest in the proceeds of sale which was dependent on the goodwill and solvency of the wife unless and until protected by a formal declaration of trust and the lodging of a caution. The failure to see these steps were taken promptly meant that the plaintiff was actually, and not just potentially, worse off than if the solicitors had performed their task competently. The sale in 1986 simply meant that the breach and its consequences were irremediable. As Nicholls L.J. has pointed out, the solicitors' negligence had two different aspects: the failure to obtain the wife's participation in a formal instrument, and the failure to protect the interests by a caution, but I respectfully agree with his view that this characteristic forms no ground for distinguishing Baker v. Ollard & Bentley, Court of Appeal (Civil Division) Transcript No. 155 of 1982 and D.W. Moore & Co. Ltd. v. Ferrier [1988] 1 W.L.R. 267, which are binding on this court."

23. One point which needs to be made is that the remedial action contemplated in Bell v. Peter Browne & Co. was much less onerous than what was required in the present case. The registration of a charge or notice can be done unilaterally whereas a great deal of uncertainty arises as to whether it would be possible to obtain a confirmatory deed from a vendor of property many years after the transaction in question.

24. Be that as it may what was important in Bell v. Peter Browne & Co. was that the court set out clearly the principles which would apply in such cases.

25. The relevant date was the date of the original transaction. The question which had to be asked was - Did the party seeking to pursue the claim incur any loss at the time of the original transaction? Here the answer to that question is clear. When Madam Lam paid the purchase moneys in 1964 she did not obtain a good title to the property she was purchasing. She therefore sustained a loss thus giving rise to a cause of action.

26. Keith, J. attempted to surmount this difficulty by holding that Nicholls LJ had mistakenly attempted to import the doctrine of discoverability into the law.

27. At p13 of his judgment he states:

" I find myself in respectful disagreement with Nicholls L.J. in treating remediability as of little practical importance because of the unlikelihood of anyone discovering, until it was too late, that there was an omission capable of being remedied, I regard Nicholls L.J. as importing into the law the doctrine of discoverability which the common law had laid to rest in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983]2 A.C. 1. That case confirmed that a loss occurred when it arose, not when it was discovered. Where a plaintiff was unaware that he had sustained loss until many years after the event, the traditional rules of limitation which Pirelli confirmed effectively prevented him from recovering a remedy. Accordingly, the legislature intervened to relieve the injustice which this causes . Thus, section 31 of the Limitation Ordinance provides an alternative limitation period in cases of loss not known to the plaintiff not involving personal injuries. However, the point is that if delay in the discovery of loss is not, under the common law, a relevant consideration in determining when loss arises, the unlikelihood of discovering that the loss can be remedied should likewise be regarded as an immaterial factor. For this reason, I respectfully decline to follow Nicholls L.J.'s view that the remediability of the loss is not capable of amounting to a distinguishing feature in these cases."

28. With respect this is quite wrong. All three judges in Bell v. Peter Browne & Co. considered the whole matter in detail and give specific reasons for rejecting any attempt to keep the cause of action alive beyond the limitation period or introduce any other means whereby a plaintiff might resurrect a claim in the manner attempted by Keith, J.

29. What is clear is that the Court of Appeal did consider all of the relevant case law in some depth. It was able to deal with the apparent conflict between Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch 384 on the one hand and Forster v. Outred and D.W. Moore v. Ferrier on the other part. In Midland Bank Oliver, J. had assumed no loss had been sustained from non-registration of the option without considering in any depth the implications of such a finding. The Court of Appeal were able for reasons they gave to overrule him.

30. At p15 of his judgment Keith, J. states that he is able to find powerful support for the remediability principle from the judgment of four of the members of the High Court of Australia in Wardley Australia v. The State of Western Australia (1992) 109 A.L.R. 247. The passage he relies upon is at p259. It needs to be read in the context of the particular facts of that case. What is significant is that the English case law was not considered in any depth and there was certainly nothing to support the view taken by Keith J.

31. If a doctrine such as the principle proposed by Keith J were to have any application it would inevitably lead to a highly unsatisfactory situation. It would become virtually impossible to ascertain with any satisfactory degree of precision when the limitation period had expired in a case such as the present one.

32. Mr Mayne for the respondents contended that "the law moves on" and that it was desirable that plaintiffs should have redress in a situation such as arose in the present case. He argued that no loss had arisen until the appellants had refused to take the remedial action which was required in 1993. He further contended that the refusal to take remedial action did of itself constitute a cause of action.

33. He did not cite any authority in support of this proposition. Indeed it appeared to be contrary to the case made out in the statement of claim.

34. Particulars of the negligence alleged are contained in clause 21 thereof. These include the events occurring in 1994. The clause refers back to the duty of care earlier pleaded which relates to the 1964 conveyancing transaction.

35. Even if the pleadings had attempted to formulate a separate cause of action for the 1994 acts and omissions it would have been doomed to failure. I say this on account of the way in which the Court of Appeal dealt with the obligation of a solicitor to provide a continuing service to their clients in Bell v. Peter Browne & Co.

36. Mustill LJ has this to say at p512:

" In fact, however, I doubt whether this theoretical question is material to the present case. Certainly, a solicitor may have a continuing retainer from his client, and no doubt there are retainers which require the solicitor to be constantly on watch for new sources of potential danger, and to take immediate steps to nip them in the bud. I confess however that I cannot see the relationship between the present parties in any such light. The proposition entails that the defendants have two duties, one express and the other implied. The express duty would be to perform the task for which they were retained and paid, namely to put into effect in a legally appropriate manner the informal arrangement between the plaintiff and his wife. The second duty, implied and presumably gratuitous, and commencing immediately after the last moment when a careful solicitor would have taken the necessary steps to formalise and protect his client's interest in the future proceeds of sale, would be to exercise continuing vigilance to discover any mistake which they, themselves, might have made, and then to busy themselves in putting it right. Evidently this obligation would continue up to, but beyond, the time when the mistake became irretrievable. I find it impossible to imply such a strange obligation from the mundane facts of the present case; and equally improbable to suppose that if it did exist the obligation would be broken at any time other than the time when the mistake should have been discovered and put right: namely, straightaway. To my mind the solicitors were employed to complete the transactions, and to complete it within the appropriate time. No more than that. Any further steps taken or not taken would relate to mitigating the consequences of a breach which had already occurred."

37. I am satisfied that this is a correct statement of the law. What this means is that the matters complained of in 1993 and 1994 cannot and do not constitute a separate cause of action.

38. One result of this is that it overcomes the problem referred to earlier in this judgment when reference was made to the judge declining to deal with the 1994 acts and omissions on the grounds that they were not relevant to the limitation issue which he had to determine.

39. For the reasons just given there was no separate cause of action in respect of these latest acts and omissions and accordingly it is possible to hold that all of the claim which is being prosecuted in the statement of claim is limitation barred.

40. There is a further matter which needs to be tied up. In his judgment Keith J queries whether the respondents might be able to avail themselves of the provisions contained in s31 of the Limitation Ordinance. This is not possible. It is evident that s38A which deals with transitional provisions precludes the operation of s31 to the facts of this case.

41. The result of all of this is that this appeal must be allowed and the order on the preliminary issue must be that the plaintiff's cause of action is barred by s4 of the Limitation Ordinance.

Bokhary, J.A.:

42. Sometimes it is with considerable regret that judges uphold limitation defences. I can understand the judge's sympathy for the plaintiff executors, who are the respondents before us. Indeed, I share his sympathy for them. But I am unable to support his decision in their favour.

43. As I see it, only one viable cause of action has been pleaded by the executors against the defendant solicitors, whose appeal this is. And that cause of action arose in 1964. It arose then when, as a result of the solicitors' negligence in the performance of their retainer, their client, the deceased, did not get what she paid for, namely good title to the shop.

44. It is axiomatic that she suffered loss once she should have got good title but did not get it.

45. In deciding as he did, the judge declined to follow the decision of the Court of Appeal in England in Bell v. Peter Browne & Co. [1990] 2 QB 495.

46. As I see it, the limitation defence in the present case must succeed whether the principle applied in that case is right or wrong.

47. In that case, Beldam LJ began his judgment thus (at p. 504 C):

"This appeal raises again the question: when does a cause of action arise for failure by a solicitor to exercise reasonable care and skill in handling the property affairs of his client? If due to such a breach the client does not get the security for which it is the elementary duty of the solicitor to provide, does he suffer loss at the moment of that failure or only when the contingency against which it is intended to guard occurs some years later?"

48. So that case involved a contingency to be protected against. The present case does not. Good title is more than mere protection against the contingency of a sale on without the same.

49. Having said that the present case does not turn on the principle applied in that one, I am not to be taken as saying that I reject that principle.

50. The judge regarded the decision of the High Court of Australia in Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514 as "powerful support" for his view on "remediability". But in truth, the Australian case, which involved an indemnity, was not about remediability. Nor did the Australian court seek to uproot the principle applied in cases like Bell v. Peter Browne & Co. (supra). It merely declined (as one sees on p. 533) to extend "the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) ... to cases where an agreement subjects the plaintiff to a contingent loss", saying that in the latter class of cases "it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled".

51. It hardly needs to be pointed out that the present case is not of that kind.

52. Mr Ribeiro for the solicitors has more strings to his bow than those with which I have dealt. I do not feel the need to deal with those other ones. But I am not to be taken as pronouncing them unsound. It is just that they are in the circumstances unnecessary.

53. I, too, would allow the solicitors' appeal to determine the preliminary issue on limitation in their favour.

Nazareth, V.-P.:

54. I agree for the reasons given by my Lords Mayo and Bokhary, JJ.A. that the appeal must be allowed.

55. In accepting the conclusions and reasons of the Court in Bell v. Peter Browne Co [1990]2 QB 495 as both right and not shown in any way to be deficient, I would express regrets similar to those of their Lordships in that case. They are all the deeper for the alleged negligence being on the part of professionals who were solicitors and the inevitability thereby that, to some extent, our system and profession of the law is impugned and its adequacy and competency challenged, to echo the words of Lord Evershed, MR quoted at p. 510G of Bell v. Peter Browne. I would add that the hardship that clients of solicitors may be subject to in circumstances similar to those here, if anything, is the result of shortcomings in the relevant legislation which are not for the courts to contrive to solve by the sort of solution proposed. Even if the "remediability principle" embodies an effective scheme to obviate or mitigate such hardship, of which I am far from convinced, it does not seem to me on the authorities applicable that that would be open to the courts to implement in the way the respondents have sought.

56. The appeal is accordingly allowed. There will be an order that the plaintiff's cause of action is barred by s.4 of the Limitation Ordinance.