Chiu Kwai Ping v. Yip, Tse & Tang (A Firm)

HCA 2159/2016

[2019] HKCFI 2118

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2159 OF 2016

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Before: Deputy High Court Judge Leung in Chambers

Date of Hearing: 6 September 2018

Date of Decision: 30 August 2019

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DECISION

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1.On 20 August 2016, the plaintiff (“Chiu”) commenced this action against the defendant, her former solicitors (“YTT”). The only cause of action is tort of negligence. The alleged breach is YTT’s failure of giving advice and giving of negligent advice to YTT, and thus the lack of registration at the Land Registry of the ancillary relief order that she has obtained against her former husband (“the Husband”) upon their divorce. YTT applies to strike out the claim, and to dismiss the action, on the ground of limitation.

Background

2.On 19 March 2008, Chiu, represented by YTT, obtained an order from the Family Court in FCMC 12909/2007 (“the Order”) that the Husband should transfer to her his interest (being half interest) in their matrimonial home (“the Property”) in the following terms:

“the [Husband] do transfer and assign all his rights, title and interests of and in the property … to [Chiu] 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 [Chiu] shall be responsible for all related stamp duty, expenses and costs, failing which [Chiu] 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]…”

3.The divorce decree was made absolute in June 2008, and the Husband should have transferred and assigned his interest in the Property to Chiu within the following 3 months.

4.On 16 July 2008, Chiu collected all the sealed court orders from YTT.

5.The Husband did more than neglecting the Order.  He served a notice of severance of the joint interests of him and Chiu in the Property in September 2010.  He further borrowed money by creating a second mortgage and a third mortgage on 16 November 2012 and 18 December 2012 respectively as well as entering into another loan agreement on 3 June 2013 all purportedly on the security of his half share of the Property.

6.The Husband has repaid the loan secured by the third mortgage and that under the 2013 loan agreement, though Chiu allegedly paid for the legal costs for their discharge.  The Husband has failed to repay the loan secured by the second mortgage.

7.The Order was eventually registered at the Land Registry on 15 July 2013.  By then, the encumbrances arising out of the loans taken out by the Husband on the security of his purported half share of the Property had already been created.

8.Chiu claims that YTT were in breach of their duty as solicitors.  As mentioned, the sole cause of action is tort of negligence[1]. YTT are said to have failed to take the following steps prior to her collection of the orders from them on 16 July 2008:

(1) advising her the effect of the Order and the registration of the Order against the Property to protect the priority of her interest in accordance with section 3(2) of the Land Registration Ordinance, Cap 128 (“LRO”);

(2) advising her the costs of registering the Order;

(3) registering the Order;

(4) advising her the right to enforce the Order.

9.According to YTT, they did advise Chiu on the telephone on 9 July 2008 that, amongst other things, the transfer of the Husband’s interest in the Property would require an assignment which they offered to prepare and quoted the necessary fee.  YTT also allegedly advised Chiu that as the Property was then registered in the joint names of the Husband and Chiu, it was important to register the Order in the Land Registry to protect the priority of her interest, and for such purpose, they also quoted the necessary fee.  In the same telephone conversation, Chiu allegedly confirmed that she would not engage YTT to do either of the above.  YTT therefore concluded the conversation with a reminder to Chiu to take those steps as soon as possible.  Chiu subsequently collected the orders, and YTT have since received no further instruction from her.

10.Chiu completely denies this alleged telephone conversation with YTT on 9 July 2008.  Further, she alleges that after an alleged threat by the Husband in August 2008 to encumber his share of the Property to finance companies, she went to seek advice from YTT in mid-August 2008.  YTT allegedly still failed to give the necessary advice to her as mentioned above.

11.YTT deny the alleged meeting between the parties in mid-August 2008.

12.At this juncture, it is convenient to interpose some more background of how the above pleaded case came about.  After YTT has taken out the application for striking out, Chiu applied to amend her pleading.  This was refused by the master, who also struck out the claim on causation ground.  The master’s decision was reversed on appeal by DHCJ Saunders, who also gave leave to Chiu to amend[2], which gave rise to her current pleaded case.

13.Taking the view that the amendments would not affect the basis of their application for striking out already taken out, YTT restored their application for hearing.

Limitation defence

14.The starting point is section 4(1)(a) of the LO, which provides that actions founded on tort shall not be brought after the expiration of 6 years from the date on which the cause of action accrued.

15.As to the alleged negligence of YTT arising out of their failure prior to 16 July 2008, YTT says that such cause of action accrued:

(1) one month after the Order was granted (ie, 19 April 2008) when Chiu lost protection on priority by operation of sections 3 and 5 of the LRO; or

(2) on or about 16 July 2008 when Chiu collected the orders and ceased to be a client of YTT.

16.As to the alleged negligence of YTT arising out of their failure during the alleged meeting in mid-August 2008, YTT contend that such cause of action accrued on the alleged giving of the advice that resulted in the failure to have the Order registered.

17.A couple of points to note.  First, Chiu is not alleging delayed requisite knowledge about the facts that gave her the right to bring action against YTT.  There is therefore no issue of the secondary limitation period pursuant to section 31 of the LO[3].  Second, Mr Shum, appearing for YTT, now submitted that Chiu’s cause of action accrued upon the solicitors’ alleged failure to advise or alleged negligent advice.  Mr Law, appearing for Chiu, complains that this is deviation from YTT’s pleaded case as mentioned above.

18.This is an application for striking out upon establishing that the plaintiff’s claim, as it is pleaded, discloses no reasonable cause of action or is an abuse of process because of limitation.  Such an application may be taken out even before any defence is filed.  I see no prejudice to Chiu as a result of the stance taken by YTT in this application in respect of the time when the cause of her action allegedly accrued.

19.In the absence of argument that Mr Law would have taken a different view of the matter, had he realized the basis of the application to strike out now advanced, which differs from the pleaded defence, I also see no materiality of his complaint, even insofar as the costs of this application are concerned.

Principles for striking out

20.YTT argues that Chiu’s claim is liable to be struck out for the lack of reasonable cause of action pursuant to O18, r19(1)(a) of the Rules of the High Court (“RHC”) and maintaining such claim is an abuse of process.  An application for striking out on such ground shall be determined without reference to evidence: see O18, r19(2). The factual allegations pleaded by Chiu are assumed to be true for the purpose of this application.  The court will strike out a claim or defence only in clear and obvious case.  These principles are trite.

Accrual of the cause of action

21.It is trite that a cause of action in tort is constituted by three elements, namely, the existence of a duty, its breach and the resultant damage.  The cause of action accrues when all three elements exist.  The parties’ arguments focus on the last of these elements.

22.The question is when damage occurred to Chiu as a result of the alleged breach of duty on the part of YTT.  Actionable damage must be real, as opposed to minimal or negligible, and actual, as opposed to purely contingent: see Kensland Realty Ltd v Tai, Tang & Chong (2008) 11 HKCFAR 237 at §51[4].

23.The pleaded loss and damage of Chiu took the following forms[5]:

(1) Her interest in the Property was diminished by or encumbered with the amount of the outstanding principal and interest owed by the Husband to the finance companies under the various loans taken out on the security of the Property.  Of the various loans, that secured by the second mortgage remains outstanding as at the date of writ.

(2) The amounts owed under the third mortgage and the 2013 loan agreement had been repaid by the Husband. However, for the purpose of their discharge, Chiu had paid legal costs.  Like the legal costs that would be payable for the discharge of the second mortgage, if and when repaid, these are pleaded as special damage suffered by her.

24.It is important to note how causation is pleaded.  Chiu contends[6] that had YTT not been negligent, the Order would have been registered at the latest in mid-August 2008, and would therefore have had priority over the encumbrances[7] created by the Husband in favour of the finance companies which were subsequently registered.

25.It is perhaps not difficult to understand why the plea as to causation is so framed.  There is not much, if at all, room for saying that the alleged breach of YTT caused the loans, mortgages and thus the subsequent encumbrances, which were events beyond YTT.  The failure to register the Order did not cause the encumbrances.

26.As to the loss of priority of Chiu’s interest over the subsequent encumbrances, section 3(1) of the LRO provides that all registered deeds, conveyances and other instruments in writing as well as judgments registered shall have priority one over the other according to the priority of their respective dates of registration. Section 5 provides that if they are registered within one month after the time of execution or entering up, they will take effect and be entitled to priority by relation to the date of the document or judgment.  However, section 3(2) provides:

“all such deeds, conveyances, and other instruments in writing, and judgments…which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes…”

27.In the present case, it is not a matter of losing the advantage of relation back pursuant to section 5.  The priority of Chiu’s interest would have been retained pursuant to section 3(1), had the Order been registered at any time prior to the encumbrances created by the securities of the Husband’s loans.  While the Order was not registered, it became absolutely null and void against those subsequent mortgagees, which apparently took the security over the Husband’s purported half share of the Property for value without notice of Chiu’s interest pursuant to section 3(2).

28.As mentioned, Mr Shum submits that real and actual damage occurred upon the failure to advise (or negligent advice), and thus the failure to register the Order, in 2008.  On the contrary, Mr Law submits that this happened only when the subsequent encumbrances were created in 2012 and 2013.

The case law

29.Numerous cases are cited in support of counsel’s submissions.  Before diving into the case law analysis, I would state the obvious, namely that the cases must be understood in their respective factual context.  The nature of the loss and damage as well as how such loss and damage arose in a given case are questions of fact: see Kensland Realty Ltd at §51 (above).

30.First, the case of Bell v Peter Browne [1990] 2 QB 495, which Mr Shum heavily relies on.  In Bell, the solicitors acted for the husband in divorce proceedings.  The husband and wife agreed to transfer the matrimonial home, then in their joint names, to the wife subject to the husband’s entitlement to receive 1/6 of the proceeds of sale whenever such sale happened.  The solicitors arranged the husband to complete the transfer to the wife, but without (a) preparing the necessary trust document in his favour or (b) registering a caution of his interest at the Land Registry.  Years later, the husband discovered that the wife had sold the property and spent the proceeds of sale.  The husband sued the solicitors. The question before the court was set out by Beldam LJ in the Court of Appeal (at 504C) as follows:

“…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?”

31.As to the court’s analysis of the solicitors’ failures, ie, (a) and (b) mentioned in the preceding paragraph, I can do no better than citing the court’s own words (starting from 502D):

Per Nicholls LJ:

“…As to failure (a), clearly the damage, such as it may have been, was sustained when the transfer was executed and handed over. At that point the plaintiff parted with title to the house, and he became subject to the practical inconveniences which might flow from his not having his wife’s signature on a formal document…To the extent that this was less satisfactory than a formal document recording the deal, the plaintiff suffered prejudice. He suffered that prejudice when the transaction was implemented without his having the protection of a formal document.

…

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.

…

I am very conscious that in Midland Bank Trust Co. Ltd. V Hett, Stubbs & Kemp [1979] Ch 384 Oliver J treated it as axiomatic that the client suffered no loss from non-registration of the option until the farm was sold.  But I can see no sound distinction between the present case and binding decisions of this court, such as Baker v Ollard & Bentley, Court of Appeal (Civil Division) Transcript No 155 of 1982 and DW Moore & Co Ltd V Ferrier [1988] 1 WLR 267 which were decided subsequent to the Midland Bank case.”

Per Beldam LJ:

“In tort of negligence, damage is the gist of the action. So until actual loss is suffered, no cause of action can arise. Thus the plaintiff argued that until the sale of the house he had no right to receive any part of the proceeds from the sale of the property. Until his former wife failed her side of her bargain, he had in fact suffered no loss. Consequently no cause of action arose until she failed to fulfil her promise to pay over a part of the proceeds of sale.

The defendants, however, contended that the case was indistinguishable from Forster v Outred & Co [1982] 1 WLR 86…

…

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…”

Per Mustill LJ:

“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 that 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 LJ 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 DW Moore & Co Ltd v Ferrier [1988] 1 WLR 267, which are binding on this court”

32.Mr Shum also relies on Ko Ming Bor & Anor v Lo & Lo [1997] HKLRD 749.  There the solicitors acted for both sides of the sale and purchase of a shop.  Contrary to the company’s articles, the solicitors arranged the vendor company to execute the assignment by only one director.  Three decades later, the purchaser attempted to further sell the shop, but was faced with the requisition on title by the third party purchaser.  The purchaser was found to have failed to prove title to the third party purchaser.  It now claimed against the solicitors for negligence.

33.In the first instance, Keith J applied the following remediability principle, which he said could be extracted from the authorities, in particular the Australian High Court case of Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514:

“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 have given 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.”

34.The Court of Appeal unanimously reversed Keith J’s decision.  Mayo JA considered that what Keith J proposed was directly contrary to the principles laid down by Bell.  His Lordship said (at 753G; 754C-F):

“… 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 1984, 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.

…

What is clear is that the Court of Appeal [in Bell] 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 … 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.

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 Ltd v The State of Western Australia … 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.

If a doctrine such as the principle proposed by Keith J were to have any application it would inevitably lead to a highly unsatisfactory degree of precision when the limitation period had expired in a case such as the present one.”

35.Bokhary JA said (at 755I-756C):

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

In deciding as he did, the judge [Keith J] declined to follow the decision of the Court of Appeal in England in Bell v Peter Browne & Co …

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

In that case, Beldam LJ began his judgment thus (at p504C):

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?

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.

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.

The judge regarded the decision of the High Court of Australia in Wardley Australia Ltd v The State of Western Australia … 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 p533) 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.

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

36.It can be seen that Mayo and Bokhary JJA took slightly different routes to rejecting the analysis of Keith J.  The former considered that the principle in Bell applied, while the latter considered that the principle in Bell applied to a case involving the lack of protection of the client’s interest (by a formal document or registration) against a contingency of loss, which was not the case in Ko Ming Bor.  Other than that, his Lordships were ad idem in rejecting the remediability principle advocated by Keith J, on the ground that the facts of the authorities, in particular Wardley Australian Ltd, from which Keith J extracted such principle, were readily distinguishable from the case before them[8].

37.In Nouri v Marvi [2011] PNLR 7 100, a person falsely pretending to the owner sold the property to the purchaser, and the solicitors were said to be negligent in handling the sale.  The purchaser sued the solicitors more than 6 years after the sale (though just within 6 years after the registration of the purchaser’s title).  The Court of Appeal held that the completion of the sale already led to a diminution in the price that a potential third party purchaser would be willing to pay, and that was when the purchaser’s cause of action accrued.  The action was therefore time-barred.

38.In Maharaj v Johnson [2015] PNLR 27 553, the vendor was the executor of the estate of the owner.  The assignment was executed by the attorney of the vendor.  22 years later, it was discovered that the power of attorney only authorized the attorney to sell the executor’s interest in the land but not that of the estate.  The solicitors handling the transaction were sued, but the Privy Council held that such cause of action accrued upon the completion of the transaction as the value of the property obtained by the purchaser was measurably less than what it should have obtained.  The action was therefore time-barred.

39.The common feature in Ko Ming Bor, Nouri and Maharaj, which Mr Shum relies on, is that the solicitors were sued for their failures in the very handling and execution of the transactions whereby the clients were supposed to obtain their titles or interests.  The solicitors’ failure impacted on the titles and interests, so that the clients invariably failed to obtain what they were supposed to obtain out of those transactions.  In those circumstances, the clients sustained measurable loss and damage immediately upon the execution of the transactions.  Those cases did not involve the failure of the solicitor in merely protecting the interest of the client against a contingency of loss.  This is also in line with the reasoning of Bokhary JA in Ko Ming Bor.

40.Bell was in a sense, but not completely, different.  The solicitors arranged the husband to part with his interest in the property in favour of the wife without any arrangement with respect to his entitlement to part of the proceeds of the sale of the property if and when such sale happened.  Such failure consisted of the lack of documentation with respect to his such interest (failure (a) in that case) and lack of registration of a caution in respect of his such interest (failure (b) in that case).  As the court held, the husband sustained loss immediately upon his parting with his interest in such negligent manner.  Whilst also described as the lack of protection against a contingency that the wife might not honour the husband’s entitlement, failure (a) of the solicitors and the resultant loss were not materially different from what happened in the other three cases mentioned above.  All were immediate measurable losses.  What the court said in respect of failure (b) in Bell should be viewed in such factual context.

41.I now turn to the cases relied on by Mr Law.

42.First, Yeung Shu & Anor v Alfred Lau & Co [1996] 1 HKC 562.  There the plaintiff entered into agreement to purchase a property to be developed by the third party.  The solicitors acting for the plaintiff purchaser neglected to register the agreement, though they actually included such service in their bill to the plaintiff.  The building was never completed.  Further, the third party mortgaged the land, and subsequently even sold it on terms that the outstanding sales agreement in relation to the land were cancelled before the sale was completed.  The plaintiff sued the solicitors for breach of contract and in negligence.  Insofar as the latter cause of action was concerned, the court found that actual loss occurred when the plaintiff’s interest in the land was extinguished.  Prior to that, there was only potentiality for loss, and the solicitors could have remedied their failure any time prior to that at minimal or no cost.  Arguments that actual loss occurred when the registration was not made were rejected.

43.Yeung Shu was also a judgment of Keith J.  In fact, his Lordship made his point by arranging to hand down both the judgment in that case and that in Ko Ming Bor at the same time, as his Lordship considered that the issues arising in the two cases were similar, and applied much of the same reasoning.  In so doing, his Lordship said (at 572D):

“The net result of this analysis is that, to the extent that Peter Browne supports Mr Chan’s proposition that the defendant’s failure to register the sale and purchase agreement of 13 November 1979 diminished the value of the plaintiff and his wife’s interest in the land, I decline to follow it.”

44.In my view, Yeung Shu must now be read subject to the Court of Appeal’s decision in Ko Ming Bor.  Insofar as the remediability principle advocated by Keith J is concerned, the same principle advocated in Yeung Shu may be considered as overruled in principle by implication.  The reliance on Yeung Shu as an authority on the accrual of cause of action on the failure of the solicitors to protect the interest of the client by registration against purely contingent loss, merely because its apparent resemblance to the present case to that extent, is perhaps doubtful as a matter of principle.

45.Having said that, I note that by including that in their bill, the solicitors in Yeung Shu acknowledged that their services to the plaintiff should have included the registration of the sale and purchase agreement for the protection of the plaintiff.  Failure in doing so amounted to breach of contract on the part of the solicitors in Yeung Shu, so that such cause of action should have accrued upon breach in any event.

46.Mr Law relies heavily on the case of Wardley Australian Ltd.  There the State claimed damages for loss allegedly suffered as a result of misleading and deceptive conduct on the part of Wardley Australian Ltd which led the State to grant an indemnity to the bank in respect of a facility granted by the bank to a third party.  Mason CJ in his judgment (at p530-532) explained the context of the English cases discussed above:

“… the English decisions have proceeded according to the view that, where the plaintiff is induced by a negligent misrepresentation to enter into a contract and the contract, as a result of the negligence, yields property or contractual rights of lesser value, the plaintiff first suffers financial loss on entry into the contract, notwithstanding that the full extent of the plaintiff’s financial loss may be incapable of ascertainment until some later date…

…

It has been contended that the principle underlying the English decisions extends to the point that a plaintiff sustains loss on entry into an agreement notwithstanding that the loss to which the plaintiff is subjected by the agreement is a loss upon a contingency. For our part, we doubt that the decisions travel so far. Rather, it seems to us, the decisions in cases which involved contingent loss were decisions which turned on the plaintiff sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a late date.

…

If contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant’s negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them.  In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred.”

47.As mentioned, Mayo and Bokhary JJA in Ko Ming Bor explained that Wardley Australian Ltd was a case of its own facts.  This is line with the explanation of Mason CJ above.  Unlike the English cases, Bell included, Wardley Australian Ltd had to do with negligence that led to purely contingent loss.  The agreement that the State entered into was to provide an indemnity in favour of the bank for the loss that the bank may be exposed to in the event that a third party did not pay it.  Such agreement did not generate an immediate liability of the State to pay upon execution of the instrument of indemnity.  It was neither a promise to meet a liability of the promisee to make a payment nor a promise to pay a debt owing by a third party to the promisee.  The loss arising out of such liability of the plaintiff as the indemnifier remained contingent, until the loss of the party to be indemnified came about and was ascertained.

48.Mr Law also relies on Law Society v Sephton [2006] 2 AC 543.  There the Law Society received from solicitors their annual accountants’ report as required by the statute. The defendant accountants engaged by a solicitor certified that the solicitor’s reports complied with the Solicitors’ Accounts Rules.  The truth was that the solicitor misappropriated a sum of money from his client account, and the defendant accountants had failed to make a proper examination of all the relevant documents and the client account.  The Law Society then intervened in the solicitor’s practice, and subsequently caused the solicitors compensation fund to pay compensation to the affected former clients of the solicitor.  The Law Society filed claim against the defendant accountants in negligence on the ground that relying on their reports, it had decided not to exercise its power to investigate and to intervene into that solicitor’s practice earlier.  In other words, the Law Society was claiming for the loss suffered as a result of having to compensate the former client of the solicitor.

49.The House of Lords considered that by virtue of the relevant compensation fund rules, what the solicitor’s misappropriation gave rise to was the possibility of a liability on the part of the Law Society’s fund to compensate, which was contingent upon the misappropriation not being otherwise made good and a claim in proper form being made.  The loss that the Law Society sustained as a result of the accountants’ failure of duty was a mere possibility of an obligation to compensate.  Such liability was contingent and was not itself damage.  Until the contingency materialised, no loss or damage had been sustained by the Law Society’s compensation fund, and no cause of action had accrued.  The Law Society’s claim was thus not time-barred.

50.The material similarity of Wardley Australian Limited and Sephton is the purely contingent loss occasioned by the defendant’s negligence.  It is therefore not surprising that the House of Lords in Sephton endorsed the applicability of the principle in Wardley Australian Ltd cited above (for instance, at §§16-18, per Lord Hoffman, §§74-75, per Lord Mance).  The circumstances of Wardley Australian Ltd and Sephton differ from the other English cases, including Bell, discussed above.  Lord Hoffmann in Sephton explained (at §22):

“Thus cases like Bell v Peter Browne & Co [1990] 2 QB 495 and … are readily explicable as cases in which the damage was the difference between the plaintiff’s position as it was and as it would have been if the defendant had performed his duty and in which it was possible to infer that the plaintiff’s failure to get what he should have got from a bilateral transaction was quantifiable damage, even though further damage which might result from the flaw in the transaction was still contingent. The plaintiff had paid money, transferred property, incurred liabilities or suffered diminution in the value of an asset and in return obtained less than he should have got. But these authorities have no relevance to a case in which a purely contingent obligation has been incurred.

…

… there seems to be no authority inconsistent with the opinion of the High Court of Australia in the Wardley case that incurring a contingent liability is not, as such, actionable damage”

Likewise, Lord Mance explained (at §78):

“Looking at the matter more generally, I also see no particular reason to accelerate the accrual of a cause of action where there has been no transaction changing the claimant’s legal position and no diminution in value of any particular asset. Where such factors are present the English authorities considered in paras.67-70 above take a clear-cut, though perhaps strict, view. The House has not been asked to review such authorities, nor would I think it appropriate to do so in the light of the way that they and the English legislation have developed. But where such factors are not present, I see the attraction in the approach taken by the Australian High Court in the Wardley case 175 CLR 514, the effect of which is that unless and until a remote contingency eventuates the claimant is not expected to issue proceedings which he would not normally issue or wish to issue unless and until that point arrives.”

51.Mr Law also borrows support from Wardley Australian Ltd for his submission that it would be unjust to expect or to compel a plaintiff to institute proceedings before the existence of the loss is ascertained or ascertainable.  This was the policy consideration discussed in that case (at pp.527; 532) (and by Neuberger LJ in his dissenting judgment in Sephton at the Court of Appeal level).  I should mention that at the House of Lords level, Lord Hoffmann in Sephton considered (at §§28-30) that the reasons of policy advanced by the Australian court were somewhat overstated, and the question must still be decided on principle.

52.The authorities discussed above were recently visited by the Court of Final Appeal in Kensland Realty Ltd (above).  In that case, the plaintiff, by acting upon the negligent advice of the defendant firm of solicitors, refused to complete the sale and purchase of the property.  Upon acting on such advice, the plaintiff immediately incurred a liability to the purchaser, which amounted to real damage.  The cause of action by the plaintiff against the defendant solicitors accrued at the point.

53.Ribeiro PJ explained (at §51) (Chan PJ agreeing):

“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[9]. 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.”

[Footnote added]

54.McHugh NPJ stated (§§157-159) the principle to the same effect:

“…That the damage cannot be quantified, or is not known, at that moment is not relevant… Similarly, if the damages are not payable until the happening of a further event, the plaintiff’s liability is contingent only and damage is not sustained until the event occurs: Wardley Australia Ltd v State of Western Australia.

…

…In Wardley, the High Court unanimously held that a claimant who had been induced by misleading conduct to give an indemnity did not suffer damage until it was called on to meet the indemnity.  The Court rejected the argument that the indemnifier suffered damage on entering into the indemnity agreement.  However, in Wardley, the indemnifier did not, and could not suffer, damage until it was called on to make good the indemnity.  Until that time, its liability to pay damages was contingent only because it might never be called on to indemnify the party indemnified.  The principle of that case has no application to a case such as the present … Nor is there any valid analogy between the situation in Wardley and the present case…”

55.In terms of how Lords Hoffmann and Mance explained in Sephton, the damage in Ko Ming Bor, Nouri and Maharaj took the form of the difference between the plaintiffs’ position as it was and as it would have been if the defendants had performed his duty and in which it was possible to infer that the plaintiffs’ failure to get what they should have got from the relevant transactions were quantifiable damage.  The same is true in the case of Bell (in respect of failure (a)), though further damage which might result from the flaw in the transaction was still contingent.  The plaintiff had paid money, transferred property, incurred liabilities or suffered diminution in the value of an asset and in return obtained less than he should have got.  Where such factor is absent, and the loss come about only if and when a contingency eventuates, there is basis for applying the approach in Wardley Australian Ltd in ascertaining when the cause of action for such loss accrues.  The final court in Kensland Realty Ltd did not say otherwise to such approach.

The present case

56.In the present case, Chiu became entitled by virtue of the Order to the entirety of the interest in the Property pending transfer and assignment by the Husband.  Until the transfer and assignment, it would have been a matter of enforcement of the Order by Chiu and the protection of her interest pursuant to the Order by registration.  Her complaint concerned the alleged failure to advise and to register the Order at the Lands Registry as protection against the contingency that the Husband would not only default in complying with the Order but also act against it.  What happened in the Ko Ming Bor, Nouri and Maharaj did not exist in the present case, as arguably Chiu was faced with loss depending on whether the contingency mentioned above eventuated.

57.Of all that have been cited, it is essentially how the court treated failure (b) in Bell that Mr Shum relies on heavily.  His argument on behalf of YTT, in line with what the court said in Bell, is that the failure to protect the client by registering the interest against subsequent encumbrances should also lead to immediate loss in the form of diminution in value of the interest or, however minimal, extra legal costs that would have had to be incurred for legal advice before the interest managed to be registered prior to the subsequent encumbrances.  However, such view of the court in Bell[10], in my view, should not be understood in isolation from the context where failure (a) in that case was in fact present.  The detailed analysis of the Higher courts in Australia, the UK and Hong Kong of the relevant principle subsequent to Bell reinforces the relevance of such context to such statement of the court there.  Suffice it to say the least for the present purpose that in the circumstances of the present case, it is not plainly and obviously unarguable that Chiu’s cause of action in negligence against YTT accrued only when the contingency of any encumbrance on the Property eventuated, and therefore her claim is not time-barred.

Disposition

58.In the premises, the application to strike out is dismissed with costs to be taxed, if not agreed. Chiu’s own costs shall be taxed in accordance with legal aid regulations.  In the absence of application in 14 days to vary, this costs order shall become absolute without further order.

Mr Lawrence Law, instructed by Carol Lam & Co, assigned by Director of Legal Aid, for the plaintiff

Mr Eric Shum, instructed by Wong, Hui & Co, for the defendant