KENSLAND REALTY LTD (in compulsory liquidation) v. TAI TANG AND CHONG

cacv 44/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 44 of 2006

(on appeal from HCA NO. 74 of 2004)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a decision of Deputy High Court Judge Gill given on 9 November 2005.  The matter before the judge was an application under Order 18 rule 19 to strike out the statement of claim and dismiss this action on the basis that it was frivolous or vexatious or otherwise an abuse of the process of the court.  The judge dismissed the application with costs to the plaintiff in any event.  At the conclusion of the hearing of this appeal this court reserved its decision which we now give.

Background

2.  The claim in this case is for negligence against the plaintiff’s former solicitors.  Briefly, the matter arose out of a conveyancing transaction.  The plaintiff was the purchaser of a shop in Kowloon but was also the vendor, as the confirmor.  The crucial events took place on 2 September 1997 when completion was due to take place at 1 p.m.  The plaintiff refused to accept the cheques and banker’s draft sent by the purchaser’s solicitors on the basis that they arrived at 1.06 p.m.  What happened is summarised in paragraph 15 of the statement of claim which states:

“Shortly thereafter, Mr Tang (“Tang”) of TTC (i.e. the defendant) called one of Kensland’s (i.e. the plaintiff’s) two directors ….. and informed her that the purchaser’s solicitors had delivered late and that this constituted a breach of a material term of the agreement; he advised her that since Whale View (i.e. the purchaser) had repudiated the agreement, Kensland was entitled to rescind the agreement and claim the deposit as forfeited.”

3.  The upshot of the matter was that the purchaser commenced proceedings on the very next day for specific performance and whilst the action failed at first instance, in a judgment handed down on 5 April 2000, the purchaser thereafter succeeded in the Court of Appeal in overturning that judgment.  The judgment in the Court of Appeal was handed down on 23 January 2001.  That was affirmed by the Court of Final Appeal in a judgment handed down on 10 December 2001.

4.  The defendant had acted as the plaintiff’s solicitors in the action brought by Whale View until 12 December 1998 but thereafter different solicitors, who instructed new counsel, acted for the plaintiff.

5.  The writ in the present action was issued on 13 January 2004.  The particulars of negligence pleaded are as follows:

“ 20.1   TTC, for no good reason, failed to provide the instructions to TPY (i.e. the purchaser’s solicitors) within a reasonable time;

20.2   TTC wrongly advised Kensland that TPY’s late tender, in the circumstances, constituted a repudiation of the agreement;

20.3   TTC wrongly advised that the instructions had been given within sufficient time for the preparation of split cheques and cashier’s orders;

20.4   TTC failed properly to review and consider the agreement, including the implied term, failed properly to advise Kensland on the basis thereof and, in particular, failed to advise Kensland that, in law, it would not be entitled to take advantage of the its (sic) own breach of the implied term;

20.5   TTC failed to advise Kensland in respect of clause 13(a) of the agreement, that is that if Kensland’s delay in completion was due to its default Kensland would not be entitled to treat the agreement as repudiated or take any consequential steps;

20.6   TTC failed generally to inform Kensland of the impact of the late instructions in the circumstances and failed to point out and advise Kensland fully of the risks involved in refusing to complete and, in particular, of the very real risk of having to compensate Whale View.”

The damage alleged in the statement of claim was said to be threefold namely:

“ 21.1   The sum of HK$8,000,000 paid (or payable) by Kensland to Whale View as damages pursuant to the judgment of the Court of Final Appeal;

21.2   The sum of HK$2,776,407.33 paid by Kensland as legal fees;

21.3   The sum of HK$17,980,000 being the diminution in value of the property following the non-completion of the sale to Whale View based on the negligent advice by TTC.”

6.  It is difficult to understand how the third heading can arise.  The plaintiff in this action clearly chose not to proceed with the sale to Whale View.  That was despite the fact that Whale View wished to proceed to purchase the property.  It is not suggested that the solicitors, the defendant in this action, stopped the plaintiff from proceeding with the sale, what is alleged is that they advised the plaintiff that it was under no obligation to do so.  The plaintiff, thus having chosen not to proceed with the sale, cannot, it seems to me, put the loss occasioned by the fact that there was a fall in the value of the property by reason, no doubt, of the Asian financial crisis, which commenced in the second half of October 1997, at the door of their solicitor.  The plaintiff chose not to proceed with the sale.

7.  The defendants’ case is quite simple.  Whilst the statement of claim can be said to disclose a cause of action, they say that there is a clear and unchallengeble defence to it under the Limitation Ordinance Cap. 347 (“the Ordinance”).  The effect of section 4 of the Ordinance is to bar any remedy which the plaintiff may have.  The argument goes on that all the facts which underlie the pleading of negligence cited above occurred on 2 September 1997.  The cause of action was thus then complete when as a result of the advice that the plaintiff wrongfully repudiated that contract.  It is the defendants’ case that the matter is so clear that having raised the matter in the pleadings they are entitled to have the claim struck out on the basis that it is frivolous or vexatious or an abuse of the process of the court.  They say that very little evidence, if any, is needed to support their application.

8.  Whilst the plaintiff accepts that the cause of action against the defendant accrued when the plaintiff acted on the defendants’ advice and refused to accept the late tender of the cheques, they rely on section 31 of the Ordinance.  That provides as follows:

(1) This section applies to any action for damages for negligence, other than one to which section 27 applies, where the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both-

(a)    the knowledge required for bringing an action for damages in respect of the relevant damage; and

(b)    a right to bring such an action,

(referred to in this section as the “date of knowledge”) falls after the date on which the cause of action accrued.

(2) The period of limitation prescribed by section 4(1) in respect of actions founded on tort shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4).

(4) That period is either-

(a)    6 years from the date on which the cause of action accrued; or

(b)    3 years from the date of knowledge, if that period expires later than the period mentioned in paragraph (a).

(5) In subsection (1) “the knowledge required for bringing an action for damages in respect of the relevant damage” (就有關損害而提出損害賠償訴訟所需的知悉) means knowledge-

(a) of such facts about the damage in respect of which damages are claimed as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment;

(b) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence;

(c) of the identity of the defendant; and

(d) if it is alleged that the act or omission was that of a person other than the defendant, of the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(6) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (1).

(7) For the purposes of this section or section 33 a person’s knowledge includes knowledge which he might reasonably have been expected to acquire-

            (a)    from facts observable or ascertainable by him; or

            (b)    from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek,

but a person shall not be taken by virtue of this subsection or section 33 to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.

9.  Although there was no reply filed, a draft reply has been prepared and when application was made to the Registrar to permit that to be filed the matter was adjourned to this court.  This court is not the proper the court for giving leave to file pleadings but the draft reply will, for the purposes of this application, be treated as a relevant pleading.  What is said in that document is that the plaintiff did not know that the damage which it suffered was attributable to the defendants’ negligence until after the Court of Final Appeal judgment on 10 December 2001 and that in the alternative even if the plaintiff did know or should have known that it had suffered loss it did not know that the damage was attributable to the specific details of the defendant’s acts in particular those referred to in paragraphs 20.1 and 20.3 of the statement of claim.  It was also said that they were not aware that the advice given by the defendants to the plaintiff that it could refuse to accept the late tender of the cheques was causative of the loss.

10.  The judge below considered that the matter was not plain and obvious and that therefore the action could not be struck out at this stage.  In my view of the matter is, unfortunately, clear.  Reliance on section 31 of the Ordinance is of no avail to the plaintiff.  Under section 31(1) the plaintiff has to establish that either the knowledge required for bringing an action for damages in respect of the relevant damage was acquired, or the right to bring an action arose, after the date on which the cause of action arose namely 2 September 1997.  There are thus two aspects.  The first is the requisite knowledge and the second is the right to bring such an action.

11.  As regards the requisite knowledge, the way the equivalent sections in the Limitation Act 1980 have been interpreted by the House of Lords in, for example, Haward and others v Fawcetts (a firm) and another [2006] 1 WLR 682 is to ask the question as to whether the plaintiff had sufficient knowledge to justify embarking on preliminaries to the issue of a writ such as submitting a claim to the proposed defendant, taking advice and collecting evidence: “suspicion, particularly if it is vague and unsupported, will indeed not be enough, but reasonable belief will normally suffice.”: See the speech of Lord Nicholls of Birkenhead at paragraph 9.  His Lordship went on to say that a plaintiff needed to be put on enquiry.  For time to start running there needed to be something which would reasonably cause the plaintiff to start asking questions about the advice which had been given.

12.  Mr Sussex SC, who appeared on behalf of the defendants, said that that was clearly so in this case since on the following day, 3 September 1997, the writ was issued by Whale View.  Indeed he went further.  He drew attention to the evidence filed by Yeung Han Yi Yvonne, a former director of the plaintiff.  At paragraph 5 of her affirmation:

“(g)    At or about 2:00 p.m. on the same day, I arrived at the Defendant’s office.  I was tendered the written instructions which confirmed the Plaintiff’s decision to reject the tender of the cheques and to forfeit the deposit signature.  The said written instructions were prepared by the Defendant in advance.  I signed the written instructions after reading the contents.

(h)    During my attendance at the Defendant’s office, Mr Tang gave me the same advice as set out in the paragraphs above, in particular, he told me that the other side might sue the Plaintiff to get back the deposit.  However, he told me that the chances of their succeeding were very low.”

13.  Whether those paragraphs, in particular the last, supports the pleadings or in reality contradicts the plaintiff’s own pleading does not matter.  It does however support the fact that the plaintiff must have been well aware at the time that there was a possibility that they were going to be sued.  That should have been sufficient to raise serious concern that the advice had been erroneous.  Matters are complicated by the fact that the defendant acted for the plaintiff in the initial stages of the action brought by Whale View.  In those circumstances the plaintiff could hardly be blamed for not issuing either third-party proceedings or a protective writ against the defendant.  That however came to an end on 12 December 1998.

14.  The other matter which has initially caused some concern is that it might be argued that the damage suffered was not known until judgment was given against of the plaintiff in the Court of Appeal and in the Court of Final Appeal.  Indeed if the plaintiff had sought to bring proceedings immediately after judgment following the trial in the High Court those proceedings would have been struck out because no damage had occurred (under heads 21.1 and 21.2 at least)even if negligence were proved.  In my view the answer lies in the fact that the damage occurred when the wrongful act of repudiation was committed and the plaintiff thus incurred liability.  It was from that date that the damages would run and that interest would be payable on those damages.

15.  It appears to me that it is of no avail to the plaintiff to argue that it was not until after the judgments in either the Court of Appeal or Court of Final Appeal that it was aware that there had been negligence.  Section 31(6) makes clear that knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of the section.

16.  I would therefore allow this appeal and make an order that the action be dismissed, with an order nisi that the costs of the action be to the defendant.

Hon Le Pichon JA:

17.  I agree.