CHIU KWAI PING v. YIP, TSE & TANG (A FIRM)

CACV 494/2019

[2020] HKCA 886

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 494 OF 2019

(ON APPEAL FROM HCA NO 2159 OF 2016)

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J U D G M E N T

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Hon Kwan VP:

1.  This is the appeal of the defendant solicitors against the judgment of Deputy High Court Judge Leung on 30 August 2019[1]. The defendant applied to strike out the statement of claim on the basis that the plaintiff’s claim for professional negligence is time-barred by virtue of section 4(1)(a) of the Limitation Ordinance, Cap 347. The judge dismissed the application and granted leave to appeal[2]. The crux of the matter is when was damage incurred in the present case.

Background

2.  The plaintiff, Madam Chiu Kwai Ping, was married to one So Wing Yiu (“Mr So”).  In September 2007, she engaged the defendant firm to advise and act for her in relation to her petition for divorce and the related application for ancillary relief in FCMC 12909/2007.  The matrimonial home in Prime View Garden, Tuen Mun (“the Property”) was held by the couple as joint tenants.

3.  On 19 March 2008, an order written in Chinese (“the Order”) was made by consent by the Family Court upon the making of the decree nisi for divorce.  According to the certified English translation, the material part of the Order provided as follows:

“The [Husband] do transfer and assign all his rights, title and interests of and in [the Property] to the [Wife] at nil consideration and free from any other encumbrances except for the existing mortgage within 3 months from the date of granting the Decree Absolute. The [Husband] do execute all necessary documents in respect of the said transfer including Assignment, and the [Wife] shall be responsible for all related stamp duty, expenses and costs, failing which the [Wife] can make application to the Registrar of the High Court requesting that all documents in respect of the said transfer be executed by the Registrar on behalf of the [Husband].”

4.  The Order was sealed on 26 May 2008.  On 6 June 2008, the decree absolute for divorce was granted.  On 16 July 2008, the plaintiff collected from the defendant’s office the originals of all the orders in FCMC 12909/2007 including the Order.

5.  Mr So did not execute any document to transfer his rights, title and interests in the Property to the plaintiff within three months of the decree absolute or subsequently, nor did the plaintiff make any application to the Registrar of the High Court requesting that all documents in respect of the transfer of Mr So’s interest to her be executed by the Registrar on his behalf.

6.  On 8 October 2010, Mr So caused a notice of severance dated 22 September 2010 to be registered in the Land Registry purporting to sever the joint tenancy in the Property such that he and the plaintiff should thereafter hold the Property as tenants in common in equal shares. Severance of the joint tenancy had already taken place on 19 March 2008 when an instrument came into existence being the Order made by the Family Court requiring Mr So to transfer his rights and interest in the Property to the plaintiff within three months of the decree absolute[3].  But as the Order was not registered in the Land Registry at the time, this enabled Mr So to give a false impression to outsiders that severance had not yet occurred until he served the notice of severance. 

7.  Facilitated by his notice of severance, Mr So created these encumbrances in respect of the half share registered in his name without the knowledge and consent of the plaintiff: 

Date of instrument	Date of registration in Land Registry	Nature	In favour of	Consideration
(1) 22/9/2010	8/10/2010	Second legal charge	Capital Dragon Credit Finance Ltd	All moneys
26/1/2011	17/2/2011	Receipt on discharge of a charge
(2) 26/1/2011	17/2/2011	Second legal charge	Golden Fields Finance Ltd	All moneys
22/11/2012	31/12/2012	Receipt on discharge of a charge
(3) 16/11/2012	23/11/2012	Second mortgage	Big Tim Corporation Ltd	All moneys
(4) 18/12/2012	16/1/2013	Third mortgage	Capital Dragon Credit Finance Ltd	All moneys
(5) 3/6/2013	Registration of this instrument was withheld	Loan agreement	Top-Hill Credit Finance Ltd	$35,000

8.  It was only on 15 July 2013 that the plaintiff caused the Order to be registered against the Property in the Land Registry.

9.  Mr So had since repaid the principal and interest outstanding in respect of the third mortgage and the principal and interest in respect of the loan agreement made on 3 June 2013.  The legal costs to discharge the third mortgage ($4,900) and the loan agreement ($3,000) were paid by the plaintiff.

10.  Mr So has not however discharged the principal and interest outstanding in respect of the second mortgage (the amount was $1,317,919.48 as of 16 May 2017) and interest has continued to accrue.

The claim against the defendant

11.  On 20 August 2016, the plaintiff issued the writ in this action against the defendant.  Her sole cause of action as advanced is negligence. She pleaded that she has suffered loss and damage in that her interest in the Property was diminished by the encumbrances created by Mr So without her knowledge and consent.  She claimed damages in respect of the amount required to discharge the principal and interest outstanding for the second mortgage, the legal costs to be incurred in the discharge of the same, and the legal costs she had incurred to discharge the third mortgage and the loan agreement.

12.  The case of negligence against the defendant was pleaded in this manner.

13.  It was alleged that the defendant owed the plaintiff a duty of care at common law to:

“(a)  advise her with that degree of care and skill reasonably to be expected of the reasonably competent solicitor in the position of the Defendant;

(b)  advise her the effect of the Order and what steps should be taken in order to protect her interests, i.e. registration of the Order in the Land Registry to show her interests in the Property by virtue of the Order to any third party, the legal consequences of registering the Order in the Land Registry to secure priority against any future encumbrances and the legal consequences of not doing so in accordance with section 3(2) of Land Registration Ordinance Cap 128;

(c)  advise her the legal costs of registering the Order in the Land Registry;

(d)  register the Order in the Land Registry to protect her interest in the Property in any event and even if, which is denied, the Plaintiff failed to give the Defendant instructions to do so; and

(e)  advise her that she has a right to ask the Court to enforce the Order.”[4]

14.  It was alleged that the defendant was negligent in that it had failed to do the acts as mentioned above on or before 16 July 2008 when the plaintiff collected the orders in the matrimonial proceedings from the defendant’s office[5].

15.  Further, it was alleged that in August 2008, Mr So threatened the plaintiff he would mortgage the Property to finance companies and in relation thereto the plaintiff sought advice from a partner of the defendant, Sun Cho Yung Pierre (“Mr Sun”), in mid-August 2008.  Mr Sun advised the plaintiff “there would be no problem because the Order said that the Property belonged to her and [Mr Sun] did not mention anything about (1) registering the Order with the Land Registry; (2) that the Order had not yet been so registered; and (3) that she could ask the Court to enforce the Order.”[6] The act in giving negligent advice and/or the failure to give proper legal advice in August 2008 was a further instance of tortious conduct[7]. 

16.  It was pleaded that if the defendant had not been negligent, the Order would have been registered on or before 16 July 2008 or at the latest in mid-August 2008 and the plaintiff’s interest over the half share in the Property that has not been transferred to her pursuant to the Order would have priority over the subsequent encumbrances[8]. 

17.  The defendant filed a defence denying the allegations of negligence and making positive averments against the plaintiff.  Although they are immaterial for the purpose of this strike out application, the defence as pleaded will be mentioned briefly for completeness.

18.  In gist, the defendant pleaded that the scope of its retainer on the basis of the agreed fee of $6,900 was for legal work done in respect of FCMC 12909/2007 “up to and including the application for and sealing of the last court order, that is, the Divorce Decree Absolute”.  After the decree absolute was sealed and on 9 July 2008, Mr Sun gave advice to the plaintiff by telephone that the Property was still registered in the joint names of the plaintiff and Mr So; that the transfer of ownership of Mr So’s interests to her required an assignment and the legal costs of the defendant for preparing the same would be $6,500; and that the Order should be registered at the Land Registry to protect the plaintiff’s interests and priority and the defendant’s legal costs for registering the Order would be $1,000.  The plaintiff informed Mr Sun in the same telephone conversation that she would not engage the defendant to prepare an assignment or register the Order.  No further instructions were given by the plaintiff to the defendant thereafter, nor was any advice given by Mr Sun to the plaintiff in mid-August 2008 as alleged.

19.  The plaintiff denied in her reply she had any telephone discussion with Mr Sun on 9 July 2008 as alleged or at all.

20.  The plaintiff has not alleged delayed requisite knowledge about the facts that gave her the right to bring an action against the defendant.  There is no issue of the secondary limitation period pursuant to section 31 of the Limitation Ordinance.

The strike out application

21.  The defendant applied to strike out the amended statement of claim and to dismiss this action on the ground that the cause of action in negligence as pleaded is time-barred and the claim is an abuse of the process of the court.

22.  The question here is whether this action, which was commenced on 20 August 2016, was brought after the expiration of six years from the date on which the cause of action accrued.  When the cause of action accrued would depend on when the damage was suffered in this situation.  As stated by Ribeiro PJ in Kensland Realty Ltd v Tai, Tang & Chong (2008) 11 HKCFAR 237 at §51:

“A cause of action in tort accrues when the damage which results from the tortious conduct is real, as distinct from minimal or negligible and is actual, as opposed to purely contingent.  The concept of “damage” is given a broad meaning.  It encompasses damage consisting of “any detriment, liability or loss capable of assessment in money terms.”  Where economic loss is involved, it includes loss suffered “by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability.”  Whether damage has been incurred in any particular case is a question of fact.  Its precise quantification may only be possible at a later date, by which time it may have become more serious, but that does not detract from the earlier accrual of the cause of action.  The damage must, however, be recoverable as falling within the measure of damages applicable to the defendant’s wrong in question.”

23.  Both parties have shifted their positions somewhat as to how and when damage was incurred in this situation and consequently when the cause of action accrued.  Their respective positions as presented in this court are as follows.

24.  Mr Erik Shum, who appeared for the defendant throughout, submitted that damage was incurred in 2008, when the defendant failed to advise the plaintiff appropriately as alleged and/or to register the Order, and hence the limitation period expired in 2014, two years before the commencement of this action in 2016.  The present situation is not distinguishable from the situations analysed in Bell v Peter Browne & Co [1990] 2 QB 495; Ko Ming Bor v Lo & Lo [1997] HKLRD 749; Kensland Realty Ltd v Tai, Tang & Chong; Nouri v Marvi [2011] PNLR 7; and Maharaj v Johnson [2015] PNLR 27, wherein the courts held that a diminution of value of the property was suffered and hence real and actual loss was incurred at the time of the acts of negligence complained of.

25.  Mr Lawrence Law, who appeared for the plaintiff here and below, submitted that the present case is distinguishable from the above cases cited by Mr Shum.  He contended that the present situation involved a contingency loss, which would only become real and hence actual loss was incurred when the contingency was fulfilled.  In this instance, this would be when the encumbrances were made by Mr So.  And as the second legal charge (created twice, on 22 September 2010 and 26 January 2011) was discharged (on 26 January 2011 and 22 November 2012 respectively), the plaintiff only actually first suffered damage on 16 November 2012 when the second mortgage (which has not been discharged) was created.  Hence, the writ issued in August 2016 is not time-barred.  But even if damage was suffered on 22 September 2010 when the second legal charge was created, this action was still brought within time on 20 August 2016.  The present situation is no different from the kind of contingency loss considered in Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 and Law Society v Sephton & Co [2006] 2 AC 543.

Analysis

26.  By the Order, the plaintiff should have transferred to her the legal and beneficial interest of Mr So’s half share in the Property within three months from 6 June 2008.  If Mr So should fail to execute an assignment to effect the transfer of his legal and beneficial interest within the stipulated time, the right of enforcement was expressly provided for in the Order: the plaintiff can apply to the Registrar of the High Court requesting the Registrar to execute all the necessary documents for the transfer to her of all the rights, title and interest on behalf of Mr So.

27.  Among the duties of the defendant owed to the plaintiff as pleaded is the duty to advise her in 2008 that “she has a right to ask the Court to enforce the Order”.  Due to the defendant’s failure to perform this duty, the plaintiff suffered in 2008 a diminution in the value of the right, title and interest in Mr So’s share of the Property that she should acquire pursuant to the Order.  Even leaving aside the encumbrances created by Mr So from September 2010 onwards without her knowledge and consent, without an assignment in her favour, the legal title of the other half interest of the Property remained to be held by Mr So.  Instead of having transferred to her the legal and beneficial interest of that half share, she has only obtained via the Order the beneficial interest, which is not as valuable as the legal and beneficial interest of the same.  Thus, real and actual loss was suffered by the plaintiff at the time of the negligent failure to advise her in 2008 of the right to ask the Court to enforce the Order.  That the precise quantification of the loss may only be possible at a later date, by which time it may have become more serious, does not detract from the earlier accrual of the cause of action (Kensland Realty Ltd v Tai, Tang & Chong at §51).  That the damage cannot be quantified, or is not known, at that moment is not relevant (Kensland Realty Ltd v Tai, Tang & Chong at §157, per McHugh NPJ).  The uncertainty surrounding Mr So’s future intentions only goes to the quantum of the loss the plaintiff eventually sustained when she took no steps to enforce the Order by having the legal and beneficial interest of his half share transferred to her (Bell v Peter Browne & Co at p 502G).

28.  Much of the arguments before the judge were devoted to the defendant’s failure to advise the plaintiff to register the Order in the Land Registry and the failure to register the Order as a lis pendens which left the plaintiff unprotected when the subsequent encumbrances were created and registered.  In this court, Mr Law characterized the defendant’s negligence as the failure to protect the plaintiff’s interest against a contingency, being the making and registration of a subsequent instrument affecting title, and until that contingency had arisen and the plaintiff’s interest was thereby extinguished or diminished, she had suffered no loss as prior to the registration of subsequent encumbrances the Order could still be registered to have protection on priority under the Land Registration Ordinance.  He submitted that the Order is not a “conveyance instrument” and it is not the pleaded case of either party that the defendant was instructed to make a conveyance or transfer of Mr So’s interest to the plaintiff.

29.  It seems artificial and unrealistic to characterize the defendant’s duty towards the plaintiff as merely a duty to protect her against a contingency of loss.  And it is missing the focus that the objective of the Order was to confer on the plaintiff the legal and beneficial interest of Mr So’s half share in the Property.  The judge is wrong to hold that the plaintiff’s complaint only “concerned the alleged failure to advise and to register the Order at the Land Registry as protection against the contingency that [Mr So] would not only default in complying with the Order but also act against it”, so “arguably [the plaintiff] was faced with loss depending on whether the contingency mentioned above eventuated”[9].

30.  There is no valid distinction in the point made by Mr Law that the parties in Ko Ming Bor had entered into a sale and purchase transaction and there was also a transaction in Bell v Peter Browne & Co in that the husband had executed a transfer of his interest in the former matrimonial home to his wife pursuant to a settlement agreement.  He also sought to distinguish Nouri v Marvi and Maharaj v Johnson in that the solicitors in those cases were sued for their failures in the handling and execution of transactions whereby clients were supposed to obtain their title or interest in a property and the solicitors’ failure impacted on the property title and interest, so the clients suffered loss and damage upon the execution of the transaction.  He submitted that as there was no property transaction in the present case, one should not be concerned about the defendant’s failure to effect a transfer to the plaintiff of Mr So’s interest in the Property and the failure of the defendant was merely to protect the plaintiff’s interest against a contingency of loss[10].

31.  It is immaterial there was no transaction in the sense that Mr So had not executed an assignment in the plaintiff’s favour.  The plain wording and effect of the Order is that the legal and beneficial interest of Mr So’s half share should be transferred to the plaintiff.  The loss she suffered at the time of the negligent failure of the defendant to advise her that she could ask the court to enforce the Order by requesting the Registrar to execute an assignment to her on behalf of Mr So was no less real and actual as compared to the loss suffered by the purchaser in Ko Ming Bor (loss was suffered at the date of the original transaction when the purchaser did not obtain good title owing to the solicitors’ negligence in allowing the assignment to be signed by only one director) or by the husband in Bell v Peter Browne (when he executed the transfer of his share to his former wife without any accompanying document prepared or a caution lodged to protect his interest that he should receive one-sixth of the proceeds whenever the sale of the property occurred).

32.  The same may also be said about Nouri v Marvi (the solicitors were negligent in handling the sale and purchase of a property in which a fraudster impersonated the owner, it was held that the forged transfer and bogus sale caused a diminution in value of the property as at that stage and such loss was not contingent on a future event) and Maharaj v Johnson (loss was suffered at the time of the original transaction in that the claimants received an interest of measurably less value to them than they ought to have obtained owing to the failure to obtain full legal title). 

33.  The present situation is entirely distinguishable from the cases of contingency loss cited by Mr Law. In Wardley Australia Ltd v The State of Western Australia, the State of Western Australia suffered no damage while its obligation under an indemnity remained contingent. Damage only occurred when the indemnity was called upon.  Similarly, in Law Society v Sephton & Co, the potential liability on the compensation fund of the Law Society caused by the solicitor’s fraud was not actual damage to set time running.  The liability in those cases was “purely contingent”, there was “absence of any change in the claimant’s legal position and of any diminution in value of any particular asset” (Law Society v Sephton & Co at §77, per Lord Mance), which is not the situation here.

34.  Applying the words of Lord Hoffmann in Law Society v Sephton & Co at §22 to the present situation, the damage suffered by the plaintiff was the difference between her position as it was and as it would have been if the defendant had performed his duty and it was possible to infer that the plaintiff’s failure to obtain what she should have obtained from the Order was quantifiable damage, even though further damage which might result from the defendant’s default was still contingent.  The plaintiff had suffered diminution in the value of an asset she should obtain pursuant to the Order and she obtained less than she should have got.  She was actually, and not just potentially worse off than if the defendant had performed their duty competently.  It is immaterial that the immediate loss was followed by contingent greater loss when the subsequent encumbrances were created and registered.

35.  There is nothing unjust or unreasonable to expect the plaintiff to bring proceedings against the defendant to recover damages arising out of the loss suffered owing to the diminution in value of the right, title and interest in Mr So’s share that she should acquire under the Order.  Of course, if measures were taken to implement the Order and thereby denying Mr So the opportunity to create any subsequent encumbrance, the plaintiff’s claim for loss and damage against the defendant would be far less, and would be confined to additional loss and expense to remedy the defendant’s default, as envisaged in Bell v Peter Browne & Co at 503G. Even so, the additional costs incurred in going to other solicitors for advice on what should be done and for their assistance in taking appropriate action would not be minimal or negligible.  Remediability of the defendant’s default makes no difference to the plaintiff’s position that the interest she obtained was vulnerable from the outset (Bell v Peter Browne & Co at 503C to D).

36.  The judge is in error in holding that it is “not plainly and obviously unarguable that [the plaintiff’s] cause of action in negligence against [the defendant] accrued only when the contingency of any encumbrance on the Property eventuated and therefore her claim is not time-barred”[11].

37.  Insofar as the judge has sought to distinguish Bell v Peter Browne & Co on the basis that the negligence of the solicitors in the failure to prepare proper documentation with respect to the husband’s transfer of his interest to the wife (described as failure (a) in that case) was different from the present situation which he characterized as the failure to protect the plaintiff against the contingency of Mr So’s default in complying with the Order or acting contrary to it, the judge is in error.  In light of this, his observation[12] that what was said in Bell v Peter Browne & Co regarding the loss resulting from the failure to register a caution to protect the husband’s interest in the proceeds of sale (failure (b) in that case) should not be looked at in isolation but should be viewed in the context of failure (a) is not to the point.

38.  I would allow the defendant’s appeal, set aside the judge’s order and order instead the amended statement of claim be struck out and the plaintiff’s claim in this action be dismissed.  And as there is no dispute that costs should follow the event, I would order that the defendant should have the costs of this appeal, the costs of the application to strike out and the costs of the action.  An order would be made for the plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations.

Hon Cheung JA:

39.  I agree.