XCHRX GIMEX DEVELOPMENT LTD v. FANG MENG SUNG, JOHN

HCA 2436/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2436 OF 2001

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D E C I S I O N

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Background

1. This is an application by the Defendant to set aside a default judgment which has been obtained regularly. The Defendant was a practising solicitor until 1995. He operated as a sole proprietor. His firm was predominantly engaged in conveyancing. The action arose out of an assignment dated 28 December 1990 executed by the Plaintiff and prepared by the Defendant. The Plaintiff alleges that the Defendant failed to exercise reasonable care and skill and allowed the Plaintiff to complete the purchase of a property without obtaining a good title. The Plaintiff discovered the defect when attempting to resell the property in 1997. The Plaintiff commenced proceedings to have the title rectified and now seeks to recover damages against the Defendant.

2. Mr Withington, who appears on behalf of the Defendant, agrees that to set aside a judgment which has been obtained regularly, the Defendant is required to show that he has grounds for defending the claim and that there was a real prospect of success. The Defendant's defence are that the Plaintiff's action has been statue-barred and secondly the Defendant was only instructed on a limited retainer to prepare the assignment and had no duty to investigate title.

Defence of limitation

3. Mr Withington submits that under section 4(1)(a) of the Limitation Ordinance, Cap 347, the Plaintiff's action in contract or on tort cannot be brought more than six years after the date on which the cause of action accrued. Thus the claim in contract became time-barred in December 1996. In the case of the action in tort, this would have been six years from the date of completion. He submits that on whatever view, the claim was prima facie statue-barred in 1996.

4. Mr Withington also refers to section 31 of the Limitation Ordinance, which provides for a special time limit for negligence actions where the facts relevant to the cause of action are not known at the date of accrual, which in the present case is three years from the date of the Plaintiff having knowledge of the defect in title. Hence, he submits, if section 31 applies, the Plaintiff's action became time-barred in April 2000. However, this section only applies to action for damages for negligence and does not cover the Plaintiff's action in contract. In any event, this section is no answer to the Plaintiff's reliance on section 26(1) for postponement of the limitation period. Section 26(6) expressly provides that sections 31 and 32 shall not apply to any action to which section 26(1)(b) applies. The burden is, of course, on the Plaintiff to show that the limitation period has been postponed by virtue of section 26(1)(b).

5. Section 26(1) and (3) provide as follows:

"(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either -

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) ......

(3) For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."

6. Mr Withington relies on the words "deliberately concealed" in subsection (1)(b). He submits that there is no evidence of concealment, deliberate or otherwise from the Plaintiff. On the Defendant's case, the Defendant was instructed on a limited retainer and was unaware of any defect in title and hence could not have been guilty of deliberate concealment.

7. Mr Chain submits that section 26 is identical to section 32 of the English Limitation Act 1980, which has been considered by the English Court of Appeal in Brocklesby v. Armitage & Guest [2001] All ER 172, where it was held that the effect of the section is to defer the commencement of the running of time until the plaintiff discovered the breach of duty if there was a deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered.

8. In Brocklesby, Morritt LJ held at page 180:

"When one turns to the terms of s 32 of the 1980 Act itself, under sub-s (1) there is a clear contrast between the action based on fraud and para (b), the concealment of any fact relevant to the plaintiff's right of action being deliberate. The requirement is that the fact relevant to the cause of action has been deliberately concealed from him by the defendant. But sub-s (2) amplifies what is meant by deliberate concealment and requires that for the purposes of sub-s (1) deliberate commission of a breach of duty, etc, amounts to deliberate concealment of the facts involved in the breach of duty. Generally speaking, and I do not say that there may not be exceptions, the civil law and, so far as I know, the criminal law, does not require that a person should know the legal consequences of the act which he commits. Generally speaking, if he knows of the act and he intends the act, but is unaware of the legal consequences, his unawareness is immaterial for it is trite law that ignorance of the law is no defence. It appears to me that had Parliament intended in the case of a deliberate concealment under s 32(1)(b) of the 1980 Act, as amplified by sub-s (2), that there should be both deliberate commission of an act in the sense of knowingly and intentionally committing the act and also knowledge that such commission gave rise to a particular legal consequence, then it required clearer words to spell that out than are to be found in sub-ss (2) or (1).

Accordingly, the conclusion I reach is that it is not necessary for the purpose of extending the limitation period pursuant to s 32(1)(b) to the 1980 Act to demonstrate that the fact relevant to the claimant's right of action has been deliberate concealed in any sense greater than that the commission of the act was deliberate in the sense of being intentional and that that act or omission, as the case may be, did involve a breach of duty whether or not the actor appreciated that legal consequence. Accordingly, for my part, I would not accept the extremely lucid and well argued submission made by Mr Clarlwood."

9. In Liverpool RC Archdiocese v. Goldberg [2001] 1 All ER182, Laddie J, as he then was, explained Brocklesby v. Armitage & Guest at page 190 as follows:

"22. So, for the purpose of s 32 of the 1980 Act, concealment is to be treated as deliberate if it is the result of doing an intentional act. What, then, is the impact of this decision on s 32(2) of the 1980 Act? It will be appreciated that the latter uses the word 'deliberate' twice; 'deliberate commission of a breach of duty' and 'deliberate concealment of the facts involved in the breach of duty'. There is no reason why the common word 'deliberate' should have different meanings in the two locations in the same subsection. If that had been the legislative intent it would have been made clear. It follows that 'deliberate commission of a breach of duty' should be read consistently with Brocklesby's case. Any intentional act which amounts to a breach of duty amounts to a deliberate commission of a breach of duty and triggers s 32(2) of the 1980 Act. The fact that in the proposed amendment to the reply, the Archdiocese concedes that Mr Goldberg did not know he was committing a breach of duty does not, therefore, exclude operation of the section. Mr Goldberg's advice was given intentionally. On the assumption, which I have to make for the purpose of this application, namely that it amounted to a breach of duty, that breach was committed deliberately within the meaning of the section.

23. That leaves Mr Simmonds' second and major argument, that s 32(2) of the 1980 Act still requires there to be concealment of facts rather than law. However on this issue, it appears to me that the language of the legislation is clear and does not support Mr Simmonds' submissions.

24. Section 32(1)(b) of the 1980 Act prevents the limitation period from running if there has been an intentional action which has resulted in any fact relevant to the cause of action being rendered invisible to the claimant. It seems to me that the purpose of s 32(2) of that Act is to treat breaches of duty which are 'deliberate' (in the Brocklesby sense), in the same way. That is to say, it deems intentional commission of a breach of duty which is unlikely to be discovered in the same way as if it were a deliberate concealment of the facts which are necessary to maintain the action for breach of duty. Thus even if all the facts are known to the claimant, the intentional commission of the breach of duty in circumstances where that breach is unlikely to be discovered, results in the creation of a legal fiction, namely that the facts are unknown.

25. This conclusion is reinforced by considering the concepts of 'concealment' and 'discovery' in s 32 of the 1980 Act. It appears to me that they are inextricably linked to each other. Consider first s 32(1)(b) of that Act. This provides that the limitation period does not run if 'any fact ... has been ... concealed'. The period of suspension lasts until the claimant 'has discovered the ... concealment ... or could ... have discovered it'. So, commencement of the limitation period is postponed because something, namely a relevant fact, has been concealed. It continues to be postponed until that same thing, that is to say the relevant fact, has been or could have been revealed. The same analysis applies to s 32(2) of the 1980 Act. It applies to the commission of a breach of duty 'in circumstances in which it is unlikely to be discovered'. The 'it' here must be a reference back to the breach of duty. It is the breach of duty which is unlikely to be discovered. It must also be the breach of duty which is concealed. Thus concealment of the breach of duty would result in postponement of the limitation period until the breach of duty is discovered. However, if Mr Simmonds were right, commencement of the limitation period would be postponed if the breach of duty were concealed, but limitation would start to run as soon as the facts were discovered. The factor justifying postponement of the limitation period would be unrelated to the factor removing the postponement. In my view that would be illogical and is not what the section means. Furthermore, if Mr Simmonds' submission were right, there would be little purpose in s 32(2) of the 1980 Act. If the latter is only triggered if and to the extent that facts are concealed, then it appears merely to duplicate, in less clear language, the effect of s 32(1)(b) of the 1980 Act."

10. One can have little to add to these elucidating dicta with which I am in complete agreement. The English Act is identical to section 26(1) and (3) of the Limitation Ordinance. Subsection (1) sets out three situations: fraud, deliberate concealment and mistake. Subsection (3) (which is the equivalent of subsection (2) of section 32 of the English Act) defines the meaning of the words "deliberate concealment" to mean the deliberate commission of a breach of duty in certain circumstances. Thus, what has to be deliberate or intentional is the commission of the breach of duty and not the concealment. As for intention, a man is taken to intend what he does. If he knows of the act he is doing, he intends the act, irrespective of whether he is aware of the legal consequence of his act. A man must be taken to intend the natural consequence of his act. If the circumstances are such that the breach is unlikely to be discovered for some time, then the Plaintiff has made out a case of postponement of the limitation period under section 26(1).

11. There is no dispute about the fact of the breach of duty. The dispute is whether the Defendant is liable on a full retainer or not liable on a limited retainer. On the basis that the Defendant was instructed to handle the entire property transaction, his failure to detect the defect in title in the property must be a breach of duty and in the circumstances an intended breach of duty. The Plaintiff was his lay client and was entitled to rely on the Defendant's skill and care in handling the transaction. It is unreasonable to expect that he would conduct a critical or professional examination of all the documentation to satisfy himself of a good title. Hence, the defect would not be discovered until another solicitor next had the occasion to examine the documentation, for example, in a subsequent re-sale. This may take years. In the circumstances, the breach would unlikely be discovered for some time. Thus, in the words of subsection (3), the alleged breach would be an intended or deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time. Hence, the breach would amount to a deliberate concealment of the facts involved in that breach of duty. On the basis of the Plaintiff's case, time did not start to run until the attempted resale in 1997. The Plaintiff has until 2003 to bring his action. The defence of limitation is therefore not available to the Defendant.

12. Mr Withington submits that the interpretation of section 26 is arguable. He refers to Cave v. Robinson Jarvis and Rolf, Case No. A2/2000/0465, in which Parker LJ expressed doubts if Brocklesby was correct. He said he was informed by his London office that leave to appeal to the House of Lords has been granted to the appellant in that case. However, Cave v. Robinson Jarvis and Rolf is another Court of Appeal decision affirming the principle in Brocklesby, and all the judges, including Parker LJ refused leave to appeal. I am satisfied as the law now stands, Brocklesby is correct and I am undeterred by the prospect of an appeal in Cave v. Robinson Jarvis and Rolf to the House of Lords. Even if the judgment were set aside and the case were to proceed to trial, the Defendant has no prospect of success with his defence of limitation with the law as it now stands.

Factual defence

13. The Defendant's defence is that he acted under a limited retainer to draft the assignment of the property and to witness its execution on behalf of the Plaintiff. The Plaintiff says otherwise. If what the Defendant says is believed, he has a valid defence.

14. For an application under Order 13 to set aside a judgment regularly obtained, a mere defence is not enough. There is a substantial onus on an applicant seeking to set aside a regular judgment. In L & M Specialist Construction Ltd v. Wo Hing Construction Co Ltd [2000] 3 HKC 335, Ribeiro JA, as he then was, held at 339B:

"Where, as in the present case, the judgment was regularly entered, the court will consider the nature of and reasons for the default but it will focus primarily on whether the defence has sufficient merits.......

The defence must generally have 'a real prospect of success' or to 'carry some degree of conviction', requiring the court to form some provisional view of the probable outcome of the action (Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc, The Saudi Eagle [1986] 2 Lloyd's Rep 221); unless such a provisional view cannot be formed without a trial of the facts (Allen v Taylor [1992] PIQR 255)."

15. Thus, while it is not the court's function in hearing such an application to conduct a minute trial on affidavits and ask whether what the Defendant says is credible or whether what the Plaintiff says is credible, the Defendant has to show he has a credible defence, one which has a real prospect of success.

16. In his affirmation, he says:

"I cannot recall precisely when my Firm received instructions from the Plaintiff, however, I recall that my instructions were to draft the Assignment of the Property ("the Assignment") and to witness its execution on behalf of the Plaintiff. Unfortunately, I am unable to produce my Firm's files relating to this transaction as they have been accidentally destroyed in a typhoon. There is now produced and shown to me marked 'FMSJ-2' a copy of my fax to Warehouse Systems Limited dated 28th September 1999 concerning the destruction of my Firm's files."

Put it simply, his defence is that his files are all lost and he could not remember anything except that he acted under a limited retainer. Is this credible? Has he a real prospect of success?

17. This was a property transaction. The Defendant was a practising solicitor and sole proprietor of a firm predominantly engaged in conveyancing. He may have handled a lot of similar conveyancing and has difficulties in remembering a particular one. But a limited retainer must be a very rare occurrence. Drafting an assignment and witnessing its execution only is not the usual business of a solicitor's firm. A solicitor would not normally accept such a limited retainer unless he knows the client personally or that the client was referred to him by someone whom he knows well or there are special reasons. In a normal transaction, if a solicitor discovers a defect in title but his client insists to proceed, he would advise him to seek independent legal advice and have him sign an acknowledgement to that effect. He would also require his client to sign an indemnity so as to protect himself from allegations of professional negligence. I would expect a solicitor instructed to draft an assignment only would take similar steps to protect himself. He would at least require an indemnity to be signed so that he would not be accused of negligence should defect in title be discovered. But the Defendant could offer nothing in his affirmation except the bare assertion that he remembered he was given a limited retainer. He did not explain why of all the things he has forgotten that he could remember he was only asked to draft the assignment and witness its execution. He certainly did not know the Plaintiff, which otherwise could have been a plausible explanation for the limited retainer. He did not explain why his firm would accept such limited retainer. Despite the unusual nature of the retainer, he did not explain why he was unable to recall the circumstances regarding this transaction. He did not say, for example, that it was his firm's usual business to accept limited retainers so that he was unable to recall the circumstances relating to this particular one. Though he has now lost all his files, there must be some of these circumstances that he could remember because of the unusual nature of the transaction.

18. On the contrary, the Plaintiff produced a memorial from the Land Office showing that the Defendant was responsible for the registration of the assignment. This may not be conclusive that the Defendant was acting for the entire transaction. However, the Plaintiff was able to produce a letter from the Defendant addressed to the vendor's solicitors saying that the Defendant had instructions to act for the Plaintiff, requesting for all the relevant title deeds and documents and inquiring about the balance of the purchase price and costs to be paid by the Plaintiff upon completion. This is consistent with acting on a full retainer in the property transaction. If he was only retained for drafting the assignment and witnessing its signature, there was no need to enquire about the balance of the purchase price and costs to be paid by the Plaintiff. There was also no need to ask for all title deeds and documents if he was not required to check title of the property.

19. In my view, his affirmation is just perfunctory. It failed to explain precisely what the proposed defence will be so that I can be assisted in forming a value judgment as to whether I can be satisfied with any degree of conviction that what he says is credible and that he has a real prospect of success in the proposed defence. I can only come to the view that his affirmation is so lacking in content as to be incredible. His allegation is no more than bare and casual assertion. I do not think he has a real prospect of success in his defence.

Conclusion

20. As the Defendant failed to show that he has a real prospect of success in his proposed defence, the Defendant's application is dismissed with costs to the Plaintiff and with certificate for counsel.