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

1995 No. A11879

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

____________

[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. But if the act or omission cannot be remedied at no or minimal cost, actual loss arises on the date of the act or omission, even though the quantum of that loss involves a high degree of speculation. Dicta in Bell v. Peter Browne & Co. [1990] 2 Q.B. 495 as to when loss arises for the purpose of determining whether a cause of action in tort is time-barred disapproved.]

_______________

J U D G M E N T

_______________

INTRODUCTION

1. In this action, the Plaintiffs claim damages against the Defendant for negligence. One of the grounds on which the Defendant defends the action is that the Plaintiffs' claim against it is time-barred. On 13th January 1996, Yeung, J. ordered that that issue be tried as a preliminary issue. This judgment relates to that issue.

2. The issues which arose in the present case are similar to those which arose in another case which I tried recently. That case was Yeung Shu v. Alfred Lau & Co. (HCA 3759/90). I reserved judgment in that case, and I am handing down my judgment in it on the same day on which I am handing down this judgment. Although much of the reasoning in each judgment is applicable to the other, each of the judgments are free-standing and independent of each other, because (a) counsel's arguments were not identical, and (b) counsel in each case did not hear the arguments of counsel in the other.

THE FACTS

3. No evidence was called on the preliminary issue. That was because the facts were agreed for the purposes of the preliminary issue. I take them from the Statement of Facts agreed between the parties, and from such assertions in the Statement of Claim which are admitted in the Defence.

4. Chung Nam Land Investment Co. Ltd. ("Chung Nam") owned a shop on the ground floor of Chung Nam Mansions, 68-88 Ma Tau Chung Road, 2-4 Mok Cheong Street in Kowloon ("the shop"). In January 1964, Chung Nam purported to execute an assignment assigning its interest in the shop to Madam Lam Kwan Sze. Madam Lam died in February 1980, and in August 1989 the Plaintiffs were appointed her executors. Eventually, they decided to sell the shop, and by a sale and purchase agreement dated 4th October 1993, the Plaintiffs agreed to sell the shop to Perfectime Ltd. ("Perfectime") for $7.08m.

5. It then transpired that there might be a defect in the Plaintiffs' title to the shop, which would prevent them passing good title to Perfectime. It had been discovered that the assignment under which Chung Nam had purported to assign its interest in the shop had been signed under seal but only by one of the directors of Chung Nam. The problem was that the Articles of Association of Chung Nam provided that deeds requiring the seal of Chung Nam had to be signed by two directors. The Plaintiffs filed a vendor and purchaser summons to obtain a ruling on whether they could pass a good title to the shop to Perfectime, but Yam J. declared that the defective execution of the assignment meant that the Plaintiffs had not shown a good title to the shop. The Plaintiffs were ordered to repay to Perfectime its deposit, and its costs of investigating title and of the proceedings.

6. Following the judgment of Yam J., Chung Nam executed a document in September 1994 ratifying the sale by it to Madam Lam of the shop in 1964. That resolved the defect in the Plaintiffs' title to the shop, and enabled the Plaintiffs to sell the shop. They did so for $6m. in March 1995.

7. The same firm of solicitors had acted for both Chung Nam and Madam Lam on the assignment of the shop in 1964. That firm was the Defendant. The Plaintiffs allege negligence on the part of the Defendant in breach of its duty of care to Madam Lam. The particulars of negligence pleaded in para. 21 of the Statement of Claim fall into two categories. First, the particulars include acts and omissions alleged to have been done or to have occurred in 1964, of which the principal one was allowing the assignment to be signed by one director only of Chung Nam. Secondly, they include acts and omissions alleged to have been done or to have occurred in 1994. The principal one of these was refusing, prior to the issue of the vendor and purchaser summons, to procure the execution by Chung Nam of an instrument ratifying the sale by it of the shop to Madam Lam in 1964. Such an instrument would have put Perfectime's doubts as to the Plaintiffs' title to rest.

THE ACTS AND OMISSIONS IN 1994

8. The limitation period for the Plaintiffs' cause of action in tort for negligence is 6 years: section 4(1)(a) of the Limitation Ordinance (Cap. 347). The writ in the action was issued on 17th November 1995. Subject to one point, therefore, there is no question of the acts or omissions alleged to have been done or to have occurred in 1994 being time-barred.

9. The point taken by Mr. Russell Coleman for the Defendant is that the acts or omissions pleaded as having been done or having occurred in 1994 were not capable in law of amounting to acts or omissions of negligence in 1994 at all. They amounted, at the most, merely to refusals by the Defendant to mitigate the consequences of what are alleged to have been their negligent acts or omissions in 1964. Whether that argument is correct or not, however, is not one which I should decide in this trial of the issue of limitation alone. On its proper analysis, the argument has nothing to do with limitation at all. It is an argument as to whether certain acts or omissions in 1994 amounted to negligence. If they did, the question then arises as to whether those acts or omissions caused Madam Lam's estate any loss. If they did not, the Plaintiffs' cause of action in relation to those acts or omissions fails. It follows that the Plaintiffs' claim against the Defendant arising out of the acts or omissions alleged to have been done or to have occurred in 1994 are not time-barred.

THE ACTS OR OMISSIONS IN 1964

10. In claims based on the tort of negligence, the cause of action accrues when the plaintiff sustains loss - actual loss as opposed to prospective or potential loss. Accordingly, it could happen that the cause of action accrues many years after the act or omission which is alleged to constitute the negligence was done or occurred. However, there is an over-riding time limit in negligence actions not involving personal injuries of 15 years from the date when the act or omission was done or occurred. That is provided for by section 32(1) of the Limitation Ordinance, which provides :

"An action for damages for negligence [not involving personal injuries] ... shall not be brought after the expiration of 15 years from the date (or, if more than one, from the last of the dates) on which there occurred any act or omission -

(a) which is alleged to constitute negligence; and

(b) to which the damage in respect of which damages are claimed is alleged to be attributable (in whole or in part)."

There is no doubt that the last date on which there occurred acts or omissions alleged to have constituted negligence was in 1994. Were those the acts or omissions to which the estate's alleged loss was attributable? If the only acts or omissions to which the Plaintiffs' alleged loss was attributable were those in 1964, section 32(1) renders the Plaintiffs' claims in relation to those acts or omissions time-barred. That applies even if the loss to Madam Lam and subsequently to her estate was not sustained until 1994.

11. This was not an issue on which I was addressed at all. That was because Mr. Coleman had not intended to take any point on section 32(1), and only decided to do so when I drew his attention to it. He simply asserted that that such loss as the estate may have suffered in 1994 was attributable to the Defendant's acts or omissions in 1964, because if the Defendant had at the time ensured that the assignment to Madam Lam had been signed by two directors of Chung Nam, none of the subsequent problems would have arisen. Although the issue of causation is highly relevant, therefore, to limitation, it is not one which I should decide without the benefit of argument. I therefore propose to decide the limitation issue in relation to the acts or omissions in 1964 without reference to it. If I decide that the Plaintiffs' cause of action in respect of those acts or omissions is not time-barred, it will be open to the Defendant to invite the Court to revisit the impact of causation on limitation at the main trial of the action.

THE NATURE OF THE PLAINTIFFS' LOSS

12. The Defendant's case is that Madam Lam sustained actual loss in 1964. That was when she did not obtain a good title to the shop. She therefore got less than she bargained for. Initially, that loss could have been quantified by reference to the cost of remedying the defect in title, i.e. the cost of executing a new assignment or obtaining a deed of ratification, but the loss would be greater later on if the defect in title was not remedied, and Madam Lam was as a result unable to sell the shop. In other words, although the measure of Madam Lam's loss might change over the years, the existence of that loss in 1964 could not be disputed.

13. The Plaintiffs' case is that Madam Lam did not sustain any loss in 1964. It was undoubtedly the case that she got less than she bargained for in 1964, because the title she acquired in 1964 was defective. However, the fact that her title was defective simply meant that she would not be able to pass a good title herself if she ever wanted to sell the shop, unless the defect in her title had been remedied in the meantime. As it is, there is no suggestion that she ever attempted to sell the shop during her lifetime, and therefore she did not sustain any actual loss while she was alive. Nor is it suggested that the Plaintiffs attempted to sell the shop after her death until they attempted to sell it to Perfectime. That was when her estate sustained actual loss, namely the loss of the bargain with Perfectime.

14. If the matter was free from authority, I would have much preferred the Plaintiffs' case. It seems to me to be obvious that although Madam Lam would not have been able to pass a good title if she had ever wanted to sell the shop before the defect had been remedied by a suitable instrument of ratification, Madam Lam would only have sustained actual loss once she had attempted to sell the shop, but had been prevented from doing so by the absence of such an instrument. There was, of course, the potentiality for such loss from the time when the Defendant permitted Chung Nam to execute the assignment by the signature of only one director, but the circumstances which might cause the possibility of that loss to become "any detriment, liability or loss capable of assessment in money terms" (which was the phrase used by Saville L.J. in First National Commercial Bank Plc v. Humberts [1995] 2 All E.R. 673 at p. 676b) might never arise. The loss which flowed from the defect in her title, i.e. the inability to sell the flat if and when she decided to, would not occur if the defect in title was remedied in the meantime.

15. These considerations translate easily into a rational and workable principle. Mr. Rimsky Yuen for the Plaintiffs is to be credited with its formulation, though I have taken the liberty of adding one or two refinements to it. 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. All that remains is to apply these principles to the facts of the present case :

(i) The Defendant's failure in 1964 to ensure that Chung Nam executed the assignment in a manner sanctioned by its Articles of Association was one which could be remedied : it was in fact

remedied by Chung Nam in September 1994.

(ii) It was capable of being remedied at no or minimal cost: all it required was the execution of a simple deed of ratification.

(iii) Since the deed of ratification had not been executed by 4th October 1993 when the Plaintiffs had agreed to sell the shop to Perfectime, it was the failure to remedy the act or omission by then which gave rise to the actual loss, and that was the date on which the Plaintiffs' actual loss arose.

THE ENGLISH AUTHORITIES

16. A series of cases in England over the last 15 years or so has addressed the thorny issue of when loss can be said to arise in circumstances comparable to the present case. I have found it difficult to extract any principle from them, perhaps because the courts in England had been at pains to say that each case turns very much on its own facts. However, with one exception, the outcome of all these cases is, in my judgment, entirely consistent with the principle of remediability to which I have referred. I deal first with the four cases relied upon by Mr. Coleman in which the courts held that the loss arose at the time of the negligent act or omission. I do not propose to set out the facts of each of these cases, but the points which I wish to make on them are these :

(i) Baker v. Ollard & Bentley (1982) 126 S.J. 593. The Plaintiff did not sustain loss simply because she did not get what she should have got, namely an interest in the first floor of the house which she could dispose of independently of her co-purchasers. She sustained loss because what she actually got was of less value than what she should have got. It was of less value from the moment she acquired her interest in the first floor, because her precarious interest in it was not capable of being remedied at little or no cost: it was only capable of being remedied in circumstances which resulted in her interest in the first floor being a less saleable interest than it would otherwise have been.

(ii) Forster v. Outred & Co. [1982] 1 W.L.R. 86. As soon as the Plaintiff had executed the mortgage deed, a freehold interest in the farm immediately became encumbered with the charge, and its value to her was immediately diminished because she merely had the equity of redemption, which would vary in value depending on the amount outstanding under the loan to her son. That diminution in value was incapable of being remedied at all.

(iii) D.W. Moore & Co. Ltd. v. Ferrier [1988] 1 W.L.R. 267. As soon as Mr. Fenton had signed the agreements containing the worthless and ineffective restrictive covenants, the Plaintiffs had sustained loss. That was because, instead of receiving a potentially valuable chose in action, they received one which was valueless. The reduction in the benefit which the Plaintiffs would otherwise have got from the agreements was again incapable of being remedied at all.

(iv) Iron Trade Mutual Insurance Co. Ltd. v. J.K. Buckenham Ltd. [1990] 1 All E.R. 808. On the assumption that the Plaintiff had concluded contracts of reinsurance as a result of some misrepresentation or non-disclosure on the part of its brokers, the Plaintiff had sustained actual loss as soon as the contracts were entered into. That was because it had not acquired the valid and effective reinsurance cover which it had engaged the brokers to procure. Instead, it had only obtained the benefit of a contract which was voidable at its option, a chose in action far less valuable than what it had bargained for. Again, that diminution in value was incapable of being remedied at all.

17. These cases represent what the deputy judge in Buckenham described as "a formidable body of authority" (p. 820e). He was referring, I assume, to the proposition that actual loss arises at a time when the plaintiff is subjected to a liability which may mature into financial loss. However, the feature which is common to all these cases is the fact that the acts or omissions which caused the loss could either not be remedied at all, or could only be remedied (the Baker case) at considerable cost to the plaintiff. It is that which, in my judgment, distinguishes them from the present case: the defect in Madam Lam's title was capable of being remedied at minimal or no cost.

18. The one case which suggests that this is not a valid distinction is the controversial decision of the Court of Appeal in Bell v. Peter Browne & Co. [1990] 2 Q.B. 495. I describe it as controversial because it has been criticised by academic writers. Indeed, it was described in McGee, Limitation Periods, 2nd ed., p. 80, as "wrong in principle". In Peter Browne, the Plaintiff transferred his matrimonial home to his wife in 1978, on the understanding that whenever it was sold he would receive one-sixth of the proceeds. The solicitors who were acting for him failed to protect his interest by a declaration of trust or mortgage or by entering a caution on the Land Register. In 1986 his former wife sold the matrimonial home and spent the proceeds. The husband started proceedings against the solicitors in 1987. It was held that the claim in tort accrued in 1978 and was therefore time-barred.

19. It had been argued on the husband's behalf that the failure to enter a caution on the Land Register could not have caused actual loss at the time, because that failure was capable of being remedied at minimal or no cost at any time before the wife sold the matrimonial home and spent the proceeds. Nicholls L.J. (as he then was) rejected that argument. He said (p. 503D-F) :

"The solicitors' breach of duty in 1978 was remediable by the [husband], 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 [husband'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 ... would be to disregard the unlikelihood in practice of the [husband] ever being in a position to remedy the breach. Once the solicitors closed their file, it was unlikely that [the] failure [to enter a caution on the Land Register] would come to the notice of the [husband] or the [solicitors], until the house was sold and it was too late. That, on the pleaded facts, is exactly what happened. The first the [husband] 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."

20. 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.

21. There are four final comments I wish to make :

(i) Mr. Yuen relied on two English cases in which the courts appeared to have held that actual loss only arises when the possibility of that loss has matured into quantifiable loss. I do not regard either of them as of assistance. The case of Dove v. Banhams Patent Locks Ltd. [1983] 1 W.L.R. 1436 is not analogous since it did not relate to negligent advice given by professionals but to negligent work done by contractors, to which different considerations apply. And the Humberts case, to which I have already referred, is really a decision on the measure of the Plaintiff's loss. The court's conclusion that the Plaintiff's loss was sustained within the limitation period was predicated upon that aspect of its decision.

(ii) Mr. Yuen also relied on the view reached by Oliver, J. (as he then was) in Midland Bank Trust Co. Ltd. v. Hett, Stubbs, & Kemp [1979] Ch. 384 on when loss arose in that case, and on the apparent approval of Oliver J.'s judgment by Lord Goff in Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 145. For the reasons given in Yeung Shu v. Alfred Lau & Co., I have not found Oliver, J.'s judgment or its apparent approval by Lord Goff of assistance.

(iii) In Wardley Australia Ltd. v. State of Western Australia (1992) 109 A.L.R. 247, the High Court of Australia had to deal with the situation where the loss was contingent on the happening of a future event. A joint judgment of four members of the Court contained this passage at p. 259 :

"It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled."

I regard that as powerful support for the proposition relating to remediability which I have identified in the course of this judgment.

(iv) Mr. Coleman argued that if the defect in Madam Lam's title had been discovered in 1964, she would at that time have incurred the cost of having either a new assignment prepared or an instrument of ratification executed. I do not think that that means that she sustained loss then. I ignore the fact that in all probability the Defendant would not have dreamt of charging her the cost of remedying its mistake: after all, the fact that the Defendant would almost certainly have waived its charges does not necessarily mean that, but for that waiver, she would not have incurred a liability to pay them. The real answer to the point is simply that that did not happen. Since this loss was in fact never sustained, no question of that loss founding a cause of action arises. A similar argument was rejected for that reason in Humberts (p. 679a-b).

CONCLUSION

22. For these reasons, I have come to the clear conclusion that the Plaintiffs' cause of action in relation to the acts or omissions in 1964 arose on 4th October 1993 when they agreed to sell the shop to Perfectime, and the Plaintiffs' claim in respect of those acts or omissions is therefore not time-barred. This, however, is subject to the effect of section 32(1) of the Limitation Ordinance, and that issue will have to be decided in the main trial of the action. In the interests of completeness, I should record the fact that Mr. Yuen did not seek to argue that the alternative limitation period set out in section 31 of the Limitation Ordinance applies to the present case. I have no doubt that Mr. Yuen would have considered that, and has decided that it is not a point which he can take, though without having given the matter much thought, I cannot at the moment see why section 31 would not have come to the Plaintiffs' assistance.

23. Finally, at present I see no reason why the Defendant should not pay to the Plaintiffs the costs of the trial of the issue on limitation to be taxed if not agreed, and I therefore make an order nisi to that effect, though the Plaintiffs are not entitled to have those costs taxed and paid until their claim against the Defendant has been finally adjudicated upon.