Byjoy Ltd v. Thorogood Estates Ltd
Read the full judgment text of HCA 8551/1983 on BabelCite. This High Court CFI judgment was delivered on 25 January 1984.
1. On the 20th December 1983 I made an order striking out the specially endorsed writ in this action pursuant to 0.18 r.19. The matter had been fully argued with the assistance of leading counsel on both sides. Mr. Michael Sherrard, Q.C. represented the Defendant making the application under 0.18 r.19 and the Plaintiff was represented by Mr. Robert Gatehouse, Q.C. and Mr. Martin Lee, Q.C. I am much indebted to them all for their able assistance and I reserved my reasons for my decision out of de
Cited by 8 cases
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HCA008551/1983
BETWEEN
___________ Coram: Hon. Clough, J. Dates of Hearing: 19 and 20 December 1983 Date of Delivery of Judgment: 25 January 1984 ___________ JUDGMENT ___________ 1. On the 20th December 1983 I made an order striking out the specially endorsed writ in this action pursuant to 0.18 r.19. The matter had been fully argued with the assistance of leading counsel on both sides. Mr. Michael Sherrard, Q.C. represented the Defendant making the application under 0.18 r.19 and the Plaintiff was represented by Mr. Robert Gatehouse, Q.C. and Mr. Martin Lee, Q.C. I am much indebted to them all for their able assistance and I reserved my reasons for my decision out of deference to the full argument which I had heard. 2. By this action the Plaintiff seeks to recover the sum of $47,219,544.00 as money had and received by the Defendant to the Plaintiff's use, the consideration for which is alleged to have wholly failed. The money in question was paid to the Defendant by way of deposit and part-payment pursuant to an Agreement dated the 31st January 1981 made between the Defendant as vendor and the Plaintiff as purchaser. 3. Under the Agreement the Defendant agreed to sell and the purchaser to purchase 4.839 equal undivided 5,060th parts or shares of and in a site belonging to the Defendant in Kowloon and of and in the buildings to be erected on that site together with the sole and exclusive right and privilege to all the floors of the building under construction and some of the proposed parking spaces. The building in question is a multi-storey industrial building known as Sun Hing Commercial and Industrial Building. 4. The same firm of solicitors acted for both parties in connection with the transaction. The purchase was never completed under the Agreement because the Plaintiff became in arrears on its instalment payments. By a letter dated the 18th January 1983 the solicitors acting for the Defendant purported to forfeit the monies paid under the Agreement by the Plaintiff. The sequel to this action on the part of the Defendant was the issue by the Plaintiff of the specially endorsed writ in this action on the 7th July 1983 claiming the repayment of the above-mentioned deposit and instalment payments. 5. On the 19th July 1983 the Defendant acknowledged service and gave notice of intention to defend and on the 21st July 1983 it issued its Summons under 0.18 r.19 and under the inherent jurisdiction of the court to strike out the Plaintiff's Statement of Claim and to have the action stayed or dismissed. The grounds for the application expressed in the Summons are that:-
6. On the 28th July 1983 the hearing of the Summons was adjourned by the Master to be heard by a judge in ??hambers and the matter came before me on the 19th December 1983. 7. The substance of the Plaintiff's claim as pleaded in the Statement of Claim is that the agreement for sale is illegal because made in breach of Rule 5C of the Solicitors' Practice Rules by reason of the fact that the same solicitor acted for both parties and did not comply with the provisions of Rule 5C. The Plaintiff further claims that it is not in pari delicto with the Defendant in relation to the illegality and is therefore entitled to recover the deposit and instalment monies paid to the Defendant notwithstanding the illegality of the transaction. 8. The Statement of Claim, in its introductory paragraphs, pleads that Mr. Chan Choy Yin ("Mr. Chan") on behalf of himself and his associates proposed at or about the end of 1980 to purchase an interest in the Sun Hing Commercial and Industrial Building (referred to in the pleading as "the Property") from the Defendant. It is pleaded that the Defendant is a subsidiary of the GreenIsland Cement Company Limited ("Green Island"), a public company, which in turn is a subsidiary of another public company called Cheung Kong (Holdings) Limited ("Cheung Kong") and that a Mr. Li Kar Shing ("Mr. Li") is and was at all material times the Chairman of Cheung Kong and Green Island. 9. By paragraph 6 of the Statement of Claim it is pleaded, that Mr. Li and Cheung Kong are and were at all material times prominent and experienced real property developers and that, as such, they were or should have been at all material times well acquainted with the rules and practice governing conveyancing in Hong Kong. 10. By paragraph 7 of the Statement of Claim it is pleaded that at or about the end of 1980 after Mr. Chan had indicated to Mr. Li, acting on behalf of the Defendant, that Mr. Chan and his associates would purchase an interest in the Property, Mr. Li -
11. By paragraph 8 and 9 of the Statement of Claim it is pleaded on behalf of the Plaintiff that Mr. Chan accordingly consulted Messrs. Woo, Kwan, Lee and Lo who formed the Plaintiff company on behalf of Mr. Chan and his associates to be used as the vehicle for the purchase and caused 2 shares in the Plaintiff company to be issued to Mr. Chan and to one of his associates, namely Mr. Harry Liu Chan Cheung. It is alleged that the same solicitors prepared the Agreement dated the 31st January 1981 which the parties eventually executed and that the solicitors in question acted for both the Defendant and the Plaintiff in the preparation and execution of the Agreement and in the sale and purchase effected thereby. 12. In paragraph 10 the Plaintiff pleads a description of the Property which was the subject of the purchase and concludes by alleging that the interest agreed to be sold to the Plaintiff did not comprise the entirety of the Property. The payments made by the Plaintiff to the Defendant under the Agreement and amounting to a total of $47,219,544.00 are pleaded in paragraph 11. 13. By paragraph 12 to 16 inclusive of the Statement of Claim the Plaintiff refers to section 73 of the Legal Practitioners Ordinance (Cap.159) whereby the Council of the Law Society is empowered to make rules, with the approval of the Chief Justice, relating to the conduct and discipline of solicitors. Reference is made to the Practice Rules made in exercise of that power and, in particular, to Rule 5C which is set out in extenso in paragraph 14 of the Statement of Claim and is alleged to have been made for the purpose of protecting purchasers of interests in uncompleted developments against developers. There follows a reference, in paragraph 15 of the Statement of Claim to the various circulars which have been issued by the Law Society of Hong Kong in relation to Rule 5C and, in paragraph 16 of the Statement of Claim, to an Approved From of Agreement for Sale and Purchase for what is referred to as the "Non-Consent Scheme" annexed to Circular No.71/80 pursuant to Rule 5C(1)(c). 14. By paragraph 17 of the Statement of Claim it is pleaded on the Plaintiff's behalf that the Agreement was within the ambit of Rule 5C but in breach thereof by reason of non-compliance with paragraphs (a), (b) and (c) of the Rule and by reason of the fact that the Plaintiff and the Defendant were not separately represented but were both represented by Messrs. Woo, Kwan, Lee and Lo. It is alleged in paragraph 18 that until about 1983 when the Plaintiff consulted its present lawyers, neither it nor any of its directors or shareholders had knowledge that the Agreement was executed in breach of Rule 5C. Finally, by paragraph 19 of the Statement of Claim it is alleged that by reason of the matters previously pleaded the Agreement was and is void for illegality. 15. Accordingly I do not look beyond paragraph 19 and the antecedent paragraphs of the Statement of Claim for the grounds advanced by the Plaintiff in support of its contention that the Agreement dated the 31st January 1981 is void for illegality. 16. After pleading the purported forfeiture of the Plaintiff's payments by the Defendant on the 18th January 1983 in paragraph 20 of the Statement of Claim, the Plaintiff alleges grounds in paragraph 21 for its contention that it is not in pari delicto with the Defendant. I do not dwell on those grounds here because, in my judgment, leading counsel for the Defendant was right when he contended that, on the striking out issue, one does not reach the pari delicto point because the Plaintiff is unable to establish the illegality of the Agreement. 17. In case this matter should go further and my decision on the illegality issue should be held to be wrong I mention that I accepted Mr. Gatehouse's argument that if the illegality of the Agreement can be established by the Defendant there can be no plain and obvious rejection of the Plaintiff's in pari delicto argument based on the principles applied in Kiriri Cotton Co. Ltd. v. Dewani (1960) A.C. 192 (P.C.). 18. The attack on the Statement of Claim was not strictly confined to reliance upon 0.18 r.19 (1)(a) and accordingly I had before me copies of the relevant circulars of the Law Society referred to in the Statement of Claim, a copy of the relevant Form of Agreement approved for the purposes of Rule 5C(c) by the Council of the Law Society, a copy of the declaration required to be made by a solicitor for the purposes of Rule 5C(a) and a copy of the Agreement dated the 31st January 1981 actually made between the parties. 19. The application has to be considered against the following legislative background. The Plaintiff contends that the Agreement dated the 31st January 1981 made between the parties is void for illegality by reason of the breach of the provisions of Rule 5C of the Solicitors' Practice Rules. Those rules are made under s.73 of the Legal Practitioners Ordinance (Cap. 159) which is an ordinance the purposes of which are -
20. Section 9(1) provides for the appointment of a Disciplinary Committee Panel of practising solicitors and s.9(2) provides that where it appears necessary or desirable to the Council of the Law Society that a solicitor's conduct should be investigated as a result of a complaint being made to it or otherwise, the Council for the purpose of such investigation may appoint a Disciplinary Committee consisting of not less than 3 members of the Disciplinary Committee Panel. Under s.10(1) of the Ordinance a Disciplinary Committee has power to inquire into and investigate the conduct of any person in respect of which it was appointed and s.10(2) makes provision regarding the disciplinary orders which a Disciplinary Committee may make when exercising its powers of investigation upon the hearing of a complaint against a solicitor or any other person within the ambit of its jurisdiction. 21. Under s.73 of the Ordinance the Council is empowered to make rules, subject to the prior approval of the Chief Justice, dealing with a number of topics which are set out in s.73(1) and may be summarised as rules -
22. In exercise of its rule making powers under section 73 the Council made the Solicitors' Practice Rules on the 1st August 1964 and they have subsequently been amended from time to time. Rule 2 contains a prohibition against touting by solicitors, Rule 2A prohibits the use on a solicitor's nameplate or stationery of a name other than the name of a solicitor, Rule 3 deals with fee cutting by solicitors, Rule 4 prohibits the sharing of profit costs by solicitors with non-qualified persons, Rule 4A provides for the proper supervision of a solicitor's office, Rule 5 deals with returns of employees by solicitors, Rule 5A prohibits further sharing of profit costs by employees of a solicitor who have cotained a waiver of the provisions of Rule 4 and Rule 5B confers powers upon the Council to enable it to ascertain whether the provisions of the rules have been complied with. Rule 5C is in the following terms:-
23. Finally Rule 6, made pursuant to the powers conferred by section 73(1)(e), confers power upon the Council to waive in writing any of the provisions of the rules in any particular case or cases, either unconditionally or subject to such conditions as the Council may think fit to impose. 24. Rule 5C was gazetted on the 26th September 1980. It was preceded by Law Society Circular No.8/80 dated the 15th January 1980. That Circular referred to the recommendations of an ad hoc committee to the effect that, as an alternative to separate legal representation for the sale and purchase of flats or units in an uncompleted development where the Consent Seheme did not apply, a standard form of Agreement for Sale and Purchase, containing mandatory clauses, and a declaration which closely followed those for the Consent Scheme should be used by all members in order to provide additional protection for purchasers. 25. The Circular indicated that the General Committee had accepted these recommendations which would be made the subject of a practice rule. Copies of the standard form of Agreement for Sale and Purchase and of the Declaration were supplied to each firm of solicitors under cover of the Circular. The Circular concluded by stating that if it was found that adequate protection was not afforded to purchasers of flats or units under the Non-Consent Scheme, Government would step in and introduce further legislative protection. 26. Circular No. 10/80 dated the 11th February 1980 contained a number of amendments to the standard form of Agreement and, although headed "Sale and Purchase of Flats", the Circular was accompanied by copies of specimen Schedules of Fittings and Finishes for domestic and non-domestic premises. Circular No. 30/80 dated the 14th April 1980 was accompanied by a copy of the revised form of Sale and Purchase Agreement for the Non-Consent Scheme. Yet another revised form of Sale and Purchase Agreement accompanied Law Society Circular No.71/80 dated the 2nd September 1980 because further amendments had been made as a result of suggestions from the Real Estate Developers' Association. 27. Rule 5C having been gazetted on the 26th September 1980 Circular No.88/80 dated the 20th October 1980 was issued by the Law Society to give members guidance on applications for exemption under the Rule. This Circular stipulated that the Rule did not apply where the developer, either before or after 26th September 1980 sold the entire development to a single purchaser. However if that single purchaser wished to sub-sell individual units prior to completion then the Rule would apply to a sale of such units. Another situation for exemption was where the approved form of Sale and Purchase Agreement had been used and there were subsequent sub-sales by the purchasers. 28. I emphasise that I have dealt with this application strictly on the assumption that all the allegations of fact contained in paragraphs 1-19 inclusive of the Statement of Claim can be proved and would be proved if this matter went to trial. In particular I make this assumption in relation to the allegation at paragraph 6 of the Statement of Claim that Mr. Li and Cheung Kong were or should have been at all material time well acquainted with the rules and practice governing conveyancing in Hong Kong. The assumption likewise is made in relation to the allegation that Mr. Li advised Mr. Chan to consult the solicitors of Cheung Kong who would attend to all the legal requirements involved in the sale and purchase. 29. I have likewise accepted, for the purposes of this application, that the interests agreed to be sold to the Plaintiff under the Agreement dated the 31st January 1981 did not comprise the entirety of a property so that the Agreement was not one which was exempted from the provisions of Rule 5C which applied to the Property notwithstanding the fact that it was not a flat or flats. 30. Again I have assumed for the purposes of the application that, as alleged in paragraph 14 of the Statement of Claim, and asserted in Law Society Circular No.8/80, Rule 5C was made for the purpose of protecting purchasers of interests in uncompleted developments against developers. Likewise I have assumed that the non-compliance with Rule 5C pleaded in paragraph 17 of the Statement of Claim and the lack of knowledge on the part of the Plaintiff and its directors regarding the terms of Rule 5C and the breach of those terms pleaded in paragraph 18 of the Statement of Claim. 31. On the other hand I have borne in mind that the allegations in paragraphs 1-19 of the Statement of Claim in support of the Plaintiff's claim that the Agreement between the parties is void for illegality does not include any allegation that the Defendant or Mr. Li or any other director or officer of the Defendant has been guilty of any conspiracy or unlawful combination with the Defendant's solicitors for the purpose of entering into an illegal transaction or of injuring or defrauding the Plaintiff. 32. Furthermore there is no allegation in the pleading that Mr. Li or any person acting on behalf of the Defendant aided or abetted the Defendant's solicitors to commit any offence under Rule 5C. The allegation in paragraph 7 is merely that Mr. Li advised Mr. Chan to consult the Defendant's solicitors who would attend to all the legal requirements involved in the sale and purchase. These allegations clearly stopped short of any intended impropriety on the part of Mr. Li or the Defendant. 33. In the course of the hearing Mr. Gatehouse for the Plaintiff indicated that the Plaintiff relied on the settled principle that the court will not enforce a contract which is expressly or impliedly prohibited by legislation and therefore illegal. He made it clear that the basis for the Plaintiff's claim that the Sale and Purchase Agreement was void for illegality was the contention that the Agreement was impliedly prohibited by Rule 5C and not that the Agreement was expressly prohibited by the Rule or entered into with the object of committing an illegal act. 34. For the Defendant in support of the application to strike out Mr. Sherrard contended that the basis for the Plaintiff's claim was misconceived and plainly and obviously not sustainable even if the solicitors concerned had broken the practice rules. 35. Citting Devlin J.'s judgment in St. John Shipping Corporation v. Joseph Rank Ltd. (1957) 1 Q.B. 267 at p.287, Mr. Sherrard relied on the passage where Devlin J. said -
36. Mr. Sherrard contended that it could not be seriously contended that the Solicitors' Practice Rules are intended to prohibit contracts at all. He questioned, and by implication denied, that it could be intended that a solicitor who was guilty of touting or using the name of a non-solicitor on his nameplate or engaging in fee cutting or failing to see that his office was properly supervised or to furnish various returns in breach of the Rules would not be able to sue for his fees or that contracts resulting therefrom would be tainted by illegality. 37. He stressed that the effective penalty for breach of the Rules included disciplinary action by the Law Society against the solicitor concerned and possibly an action in damages by an aggrieved client who could show loss. In his submission it was plain and obvious that Rule 5C was not intended to prohibit contracts between the clients of a solicitor. 38. He contended that Rule 5C was expressly directed at solicitors and the activity which it prohibited was their acting for both vendor and purchaser where the requirements of the Rule were not carried out. The Rule was not, he submitted, directed at vendors or purchasers nor at selling or purchasing and he maintained that this factor was in itself sufficient to distinguish the present case from those cases where the courts had been prepared to imply prohibitions of contracts entered into contrary to a statutory provision: see Anderson Limited v. Daniel (1924) 1 K.B. 138 (C.A.); B and B Viennese Fashions v. Losane (1952) 1 All E.R. 909 (C.A.) and Ashmore, Benson, Pease & Co. Ltd. v. A.V. Dawson Ltd. (1973) 1 W.L.R. 828 (C.A.). 39. Having contended that there was no necessary inference nor indeed any inference at all that Rule 5C is intended to affect contracts between the clients of a solicitor Mr. Sherrard went on to contend that there were sound reasons why such an inference should not be drawn. It could not, he submitted, have been intended by the legislature, nor by the Council of the Law Society that a matter so important as the validity of contracts relating to the sale of land should be determined by delegated legislation contained in Solicitors' Practice Rules and Circulars issued by the Law Society to its members. He added that even if, contrary to his submissions, Rule 5C purported to invalidate transactions of this sort then that Rule must be ultra vires s.73 of the Legal Practitioners Ordinance which gives the Council rule making powers which relate only to the conduct and discipline of solicitors. 40. He pointed out that if the rules affected contracts at all then contracts between the clients of solicitors who were in breach of the Rules were "collateral" in the sense of that term as used by Devlin J. in the St. John Shipping Corporation case (supra) at p.287. It could not, he contended, be seriously contended that contracts negotiated by solicitors for their clients fall to be struck down if the solicitor, to the knowledge of a client, touted that business or shared his fees with an unqualified person or used the name of an unqualified person on his nameplate. 41. In further support of the proposition that there were sound reasons why it should not be inferred that the Rule was intended to affect contracts between the clients of a solicitor Mr. Sherrard relied upon a number of factors which he set out in his written submissions under the rubric of "The Penalty". He repeated that the penalty contemplated by the Rules for an infraction was disciplinary action by the Law Society against the solicitor together with the possibility of a claim in damages against the solicitor if damage could be proved. There was he said no justification for visiting the "sins" of a solicitor in breach of the Practice Rule upon his client. 42. He further contended that if the conduct of the solicitor is to be imputed to his clients it should be imputed to both of them for whom he acted. The introduction of the Plaintiff to the solicitor by the Defendant in the present case should not, he contended, make any difference. No conduct on the part of the Defendant had been alleged in the Statement of Claim that could make it liable for the acts of the solicitors any more than the Plaintiff should be responsible for such acts too. 43. He then went on to develop an argument that to strike down the Agreement would be to impose a major penalty on the Defendant for an unwitting and ignorant breach of the Rule. It would, he contended, be unfair to expect the Defendant to know the contents of the Solicitors' Practice Rules some of which are contained simply in Circulars issued by the Law Society to its members. 44. A further ground relied upon by Mr. Sherrard for his contention that there are sound reasons why it should not be inferred that the Rule is intended to affect contracts between the clients or a solicitor was that any illegality (which was denied) related only to the mechanics by which title was to pass, the formation of the Agreement and the object to be achieved being lawful. In this connection he relied on the authorities for the proposition that the fact that a party commits some illegality in the course of performance of a contract does not result in his being unable to enforce the contract: see the St. John Shipping Corporation case (supra) approved by the Court of Appeal in Shaw v. Groom (1970) 2 Q.B. 504 (C.A.); Mary-Ann Arrichiello v. Tanglin Studio Pte. Ltd. (1981) 2 MLJ 60. 45. Finally, Mr. Sherrard contended that to construe Rule 5C so as to render the Agreement void for illegality would have the unfair result that the Plaintiff would have had the benefit of the Defendant's contractual obligation to deliver the property extending for more than a year without any accompanying obligation on the part of the Plaintiff to pay the price for the land. This amounted to a free option for a year. 46. For the Plaintiff, Mr. Gatehouse rightly stressed the importance of the long established practice of the court not to accede to a striking out application except in a plain and obvious case which is clear beyond doubt for such a condign measure. In his submission this was not a case for striking out at all and he contended that there was an issue fit to be decided at a trial after full scale argument or at least as a preliminary point of law under 0.33 r.3. 47. Having dealt with the arguments of Mr. Sherrard on the pari delieto issue which, for the reasons given above, I do not intend to evaluate in this judgment, Mr. Gatehouse went on to deal with Mr. Sherrard's argument on the principal question whether Rule 5C impliedly prohibits the Agreement which was made between the Plaintiff and the Defendant in the present case by reason of the non-compliance with the provisions of that Rule. 48. The onus was on the Defendant, Mr. Gatehouse contended, to establish a plain and obvious case for striking out and the Defendant had failed to discharge that onus. 49. When dealing with Mr. Sherrard's argument Mr. Gatehouse made a number of pertinent points before helpfully summarising his own argument on behalf of the Plaintiff. He stressed that if the object of Rule 5C was the protection of one of the parties to a purchase and sale, namely the purchaser, then the rule might well be intended to prohibit a contract made in breach of its provisions. The Rule was, he contended, to be considered in its own context as a rule for the protection of a class of persons and he was not concerned to argue regarding the effect of other disciplinary rules on related contracts. If a contract was contrary to the provisions of a statute the result of the infringement was a matter for the interpretation of the statute and the intention of the legislature may have been to deal with contract in the present case. The ultra vires argument would, he contended, be as serious argument at the trial. It was easy to assert such an argument but another matter to decide it. 50. Mr. Gatehouse did not accept Mr. Sherrard's argument that there was no justification for visiting the "sins" of a solicitor who was in breach of the Practice Rules upon his client. Such a proposition, he contended, contravened the principles of agency law. He further stressed that the Agreement in the present case had itself been entered into in breach of the Practice Rules and this was not a case analogous to the St. John Shipping Corporation case (supra). He also emphasised that in the case of Mary-Ann Arrichiello v. Tanglin Studio Pte. Ltd. (supra) illegality was not relied upon by the protected party. 51. Mr. Gatehouse then summarised the argument on behalf of the Plaintiff in resisting the striking out application as follows. It had been acknowledged, he submitted, that Rule 5C was made for the protection of purchasers against developers. It was made to protect the Plaintiff in the context of the present case. It was also clear that the Rule applied to a sale where anything less than the whole development was dealt with. The Agreement in the present case did not, inter alia, incorporate the mandatory terms in the prescribed form designed for the protection of purchasers and therefore there had been a breach of the Rule. 52. He further contended that the Defendant had entered into the Agreement knowing of the rule and of the breach thereof because the law imputed to the Defendant as principal the knowledge of his agent and furthermore the Defendant had actual knowledge of the "Non-Consent" Scheme. In this connection, he referred to Clause 13 of the Agreement made between the parties where express reference is made to that Scheme. 53. This was not a case, Mr. Gatehouse contended, of a lawful Agreement being made and followed by illegality in performance. It was a case where the Agreement itself had been made in breach of the enactment. The fact that Rule 5C primarily aimed at the solicitor who was the client's agent did not necessarily absolve the client who was the solicitor's principal. If the Agreement was illegal the Plaintiff as a protected person might rely upon it although he too was fixed with imputed knowledge: see Kiriri Cotton Co. Ltd. v. Dewani (supra). 54. Finally he submitted that 0.18 r.19 was never intended to apply to a situation such as the one in the in the present case and that to strike out the Plaintiff's Statement of Claim would be to drive a protected person from the judgment seat. 55. I have already stated above but emphasise again that, for the purposes of this application, I assumed that all the matters of fact alleged in the Plaintiff's Statement of Claim were capable of proof by the Plaintiff. I also bore in mind the importance of the established practice whereby the court does not exercise its power to strike out a pleading except in a plain and obvious case which is clear beyond doubt. 56. However all the relevant information necessary to enable the court to decide the question of interpretation which has arisen in this case was before the court at the hearing and I do not consider that it would be right for the court to refuse to strike out the pleading in the present case on the grounds that the issues arising are difficult or complicated if the court comes to conclusion after full argument in the face of all the relevant information that the case is plainly and obviously one for striking out. 57. However difficult or obscure the point may be it will not become any less so by waiting for decision on a preliminary issue under 0.33 r.3 or for the trial: c.f. the observations of Buckley J. in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No.3)(1970) Ch.506 at p.537 in the following terms, albeit in a different context from the present -
58. After giving anxious consideration to the submissions on both sides in this case I have no hesitation in accepting the contention advanced by Mr. Sherrard on behalf of the Defendant that it is plain and obvious that the provisions of Rule 5C, when interpreted in accordance with s.19 of the Interpretation and General Clauses Ordinance (Cap. 1) and given fair Iarge and liberal construction and interpretation so as best to ensure the attainment of the object of the Rule according to its true intent, meaning and spirit, do not and are not intended to prohibit contracts for the sale of land or any class of such contracts. Asking myself the two questions put by Devlin J. in the St. John Shipping Corporation case (supra), I answer them both firmly in the negative. 59. Accepting, for the purposes of this application, that the intention of the Council when making Rule 5C was to protect purchasers from developers in transactions for the sale and purchase of flats or other interests in land at a time when there was a seller's market, I have reminded myself that, as Devlin J. pointed out in the St. John's Shipping Corporation case (supra) at p.287, that purpose is an important consideration but it is not the only test when interpreting the relevant legislation. As Devlin J. pointed out in the same passage -
60. The same principle was applied by Harman L.J. in Shaw v. Groom (1970) 2 Q.B. 504 (C.A.) at p.518 para. B. 61. Construing Rule 5C in the ordinary way it seems to me to be clear beyond doubt that, in so far as the Intention of the Council when making the rule was to protect the purchaser from the developer/vendor, such protection was to be afforded by inhibiting a solicitor from acting for both the purchaser and the vendor developer unless he complied with the provisions of Rule 5C and the relevant Circulars of the Council and thereby ensured that, notwithstanding the obvious risk involved in common representation of the parties in an arm's length conveyancing transaction, the purchaser would at least receive the benefit of the mandatory terms of the prescribed form of Agreement intended for the purchasers' benefit. Any breach by the solicitor of Rule 5C is visited with liability for disciplinary proceedings taken against the solicitor pursuant to s.10 of the Legal Practitioners Ordinance. 62. As Mr. Sherrard has pointed out the Rule regulates the retainer of the solicitor within a situation which is within its ambit. It stipulates when he may act for both vendor and purchaser of property under development and upon what terms he may do so on pains of a disciplinary charge if he is in breach of those terms. 63. Futhermore if a solicitor is in breach of the terms of Rule 5C when agreeing to act for both parties to the proposed transaction he is not acting as the agent for either of those parties, he is acting for himself. In my judgment, the fact that the vendor/developer is aware that the solicitor is acting in breach of Rule 5C is neither here nor there unless the vendor/developer is guilty of some form of conspiracy or aiding and abetting of the breach of the Rule by the solicitor. 64. Mr. Gatehouse contended that the Agreement itself was in breach of the Rule. In my judgment it is not the Agreement which is in breach of the Rule it is the act of the solicitor in acting for both parties without complying with the conditions of the Rule which constitutes the breach and the breach is committed by the solicitor and not by the parties to the Agreement. In my judgment the Rule simply does not "bite" on the Agreement at all. 65. Doing my best, in the words of Lord Wright in Vita Food Products, Inc. v. Unus Shipping Co. (1939) A.C. 277 (P.C.) at p.293, "to try to get at the real intention" of the Council "by carefully attending to the whole scope" of the Rule, and bearing in mind the scope and intention of the Legal Practitioners Ordinance I am driven to the conclusion that the Rule is not intended to prohibit a contract made between a developer/vendor and a purchaser when there is a common solicitor acting for both parties but is intended to ensure protection of the purchaser to the extent possible by prohibiting the solicitor from acting for both parties unless he complies with the requirements of the Rule. This is reflected in the last paragraph of the Law Society Circular No.8/80 where it is indicated that if it is found that adequate protection is not afforded to purchasers of flats or units under the Non-Consent Scheme, the Government will step in and introduce further legislative protection. 66. Moreover, the Legal Practitioners Ordinance is intended to make provision for the admission and registration of legal practitioners and their employees, and of notaries public and for purposes connected therewith. It is not an Ordinance which the legislature intended to be used as an instrument for regulating the sale of land between members of the public. The rule making powers contained in s.73 of the Ordinance have been referred to extensively above and, in my judgment, they cannot possibly be invoked for the purpose of regulating the sale of land although they clearly can be used for the purpose of regulating the conduct of solicitors acting in connection with the sale of land. 67. Mr. Gatehouse argued that the ultra vires argument advanced by Mr. Sherrard was easy to assert but another matter to decide. In my judgment, there are plain and obvious reasons, as indicated above, for deciding that the ultra vires argument is sound and is one of the compelling reasons for holding that the Rule does not impliedly prohibit the Agreement which was made in the present case. 68. I bear in mind the approach adopted by Lord Wright in the Vita Food Products Inc. case (supra) at p.293 where he observed -
69. I also bear in mind the observation of Devlin J. in the St. John Shipping Corporation case (supra) at p.288 to the effect that a court should not hold that any contract or class of contracts is prohibited by statute unless there is a clear implication or "necessary inference" that the statute so intended. 70. In the present case I can find no "necessary inference" that the Rule, or the Ordinance under which the Rule has been made, intends or even contemplates that the Agreement made in the present case should be prohibited and illegal. In my judgment it is unthinkable that the legislature should have contemplated that the exercise of the rule making powers conferred by s.73 of the Ordinance in relation to the conduct and discipline of solicitors and kindred, matters should be available to the Council with the consent of the Chief Justice to regulate any class of contract for the sale and purchase of land as between members of the public and to do so in such a way that the Council should have power to waive in writing any of the provisions of Rule 5C in any particular case or cases. 71. In my judgment the interpretation of Rule 5C is so clear and the ultra vires argument is so compelling in support of the interpretation which Mr. Sherrard has advanced on Rule 5C that it is not necessary to explore at any length the implications of public policy in this case. 72. However I feel constrained to observe that it cannot, in my judgment, be consistent with public policy that citizens of Hong Kong who entered into agreements within the ambit of Rule 5C, with or without knowledge of the Rule and the relevant Circulars of the Law Society, should be put in the position where their agreement is rendered illegal for disobedience to the Rule by their common solicitor subject only to the powers of exemption conferred upon the Council by Rule 6 of the Solicitors' Practice Rules. Apart from questions of unjust enrichment the effect upon practical conveyancing and the making of title would, in my judgment, be so manifestly unacceptable as to demonstrate that public policy in its widest sense cannot be prayed in aid in support of the construction of Rule 5C contended for on behalf of the Plaintiff. 73. Accordingly, for the above reasons, I ordered the Statement of Claim specially endorsed on the Plaintiff's writ to be struck out and that the action be dismissed with costs.
Representation: Mr. Gatehouse Q.C., Mr. Martin Lee Q.C., with Mr. Patrick Fung instructed by M/s Ng & Yung for the Plaintiff. Mr. Michael Sherrard Q.C., with Mr. William Chan instructed by M/s. P.C. Woo & Co. for the Defendant. |
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