Chu Yen Estates Ltd v. Ho Sau Ki

HCA001029/1976

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 1029 of 1976

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Coram: Trainor, J. in Chambers

Date of Judgment: 8th October, 1976.

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JUDGMENT

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1. This is one of those unfortunate cases where one of two innocent parties has to suffer as the result of both of them engaging a solicitor who turned out to be a scoundrel.

2. The plaintiff entered into an agreement dated the 19th August, 1975 to purchase from the defendant certain premises free from encumbrances. A Mr. Danny Yiu was the solicitor for the vendor and the plaintiff decided to use the same solicitor. The reasons alleged to have induced the plaintiff to engage Mr. Yiu were canvassed before me but I consider them immaterial and do not intend to dwell on them. The purchase price agreed was $1,150,000 and the sale was to be completed on the 1st September, 1975 in the offices of Mr. Yiu. In pursuance of the agreement the plaintiff paid $115,000 "on account of the purchase money" to Mr. Yiu as stakeholder. By two subsequent payments, the latter of which was on the 1st September, 1975, the plaintiff paid the balance of the purchase money to Mr. Yiu. On the 1st September the defendant executed an indenture of assignment, undated save as to the year, 1975, which acknowledged in the body of the deed the receipt of the purchase money, and which assigned the premises free from encumbrances. A receipt for the purchase price signed by the defendant was also endorsed on the deed. On the 1st September, 1975 the plaintiff was given the keys of the premises. On the 2nd September the plaintiff paid to the defendant directly the sum of $2,290 in respect of electricity and water deposits and towards the Management Foundation Fund.

3. Mr. Yiu disappeared and the plaintiff subsequently discovered that there was in existence a mortgage on the premises which had not been discharged, and on which there was a sum of $872,657.20 due for principal and interest.

4. The Law Society nominated a firm of solicitors to take over the affairs of Mr. Yiu for the benefit of those persons who had had the misfortune to engage that rogue as their solicitor. It was possible for the solicitors for the plaintiff to ascertain from papers in the control of Messrs. D'Almado e Castro, the Law Society's nominees, that on the 28th August, 1975 Mr. Yiu paid the defendant out of the deposit the sum of $100,000. A "Clients Voucher" in which the defendant is named as the client and which refers to the premises in suit reads "Part of deposit money on account. $100,000." There was another similar "Clients Voucher" dated the 1st September, 1975 which also referred to the suit premises and read "Balance of Purchase Price payable to the Vendor. $229,400.52". The defendant admits receiving those two sums and also another sum of $20,000. There is still another "Clients Voucher". It is dated the 5th September and also refers to the suit premises. It reads "Refund of Principal and Interest on Re-assignment. $22,499.74".

5. I think it is common case, it certainly is the case of the defendant, that the sums paid by Mr. Yiu to the defendant amount, approximately, to the balance that would then have been due to him had the mortgage on the premises been discharged.

6. The defendant refused to discharge the mortgage on the premises and the plaintiff caused to be issued a writ of summons seeking:

The defendant delivered a Defence. In substance it is as follows: all monies paid to Mr. Yiu by or on behalf of the plaintiff were received by him in part as stakeholder and in part as agent for the plaintiff; and the sums paid to the defendant to which I have already referred were all he received, the balance retained were retained by Mr. Yiu as agent for the plaintiff to discharge the mortgage on the premises.

7. In the writ of summons it was pleaded that the parties orally agreed to extend the closing date of the sale to the 9th September in consideration of the plaintiff paying to the defendant the sum of $4,000. It was pleaded that this sum was duly paid on the 2nd September, and that on or about the 9th September the defendant executed the undated indenture of assignment. The Defence denied the oral agreement and payment, and stated that the undated assignment was signed on the 1st September, and pleaded that the assignment was executed in the belief that the sale would be completed on that date. The Defence then went on to plead that: (a) The plaintiff did not complete the purchase on the 1st September but purported to complete on the 9th September; (b) No admission was made that all purchase money had been paid by that date; (c) The mortgage was not cleared off and the property never re-assigned and by reason thereof: "... the indenture of assignment was and is invalid, and/or did not assign to the plaintiff any legal interest and/or was signed only in escrow". I do not consider there is anything in that plea and refer to and quote that part of the Defence solely because, although the paragraph of the Statement of Claim was amended by the deletion of the reference to the oral contract and the payment of the $4,000, it was argued before me that the assignment was still in escrow.

8. The matter appeared before me in pursuance of Order 27 Rule 3 and Order 86. I found for the plaintiff and ordered the was argued, before me that defendant: to obtain from Messrs. D'Almado e Castro the assignment executed by the defendant on the 1st September, 1975 and all other documents of title (of any) pertaining to the property in suit; to complete the assignment by inserting the date the 1st September, 1975 therein; to hand over to the plaintiff the assignment and other documents; to discharge the mortgage and obtain a re-assignment of the property and register it at his expense or alternatively to pay to the plaintiff all sums due on the mortgage for principal and interest to enable the plaintiff to discharge the mortgage and have the discharge registered together with all costs necessarily incurred. I awarded costs to the plaintiff with a certificate for counsel.

9. I now give my reasons.

10. It was common case that there was an agreement for sale of the property free from encumbrances; that there was a mortgage on it; and that Mr. Yiu was the solicitor for both parties. It was the contention of Mr. Swaine, counsel for the defendant, that the plaintiff was at all time aware of the existence of the mortgage. I do not necessarily hold that to be so but in my view whether he did or not is quite immaterial to this case.

11. Mr. Swaine's case as I understood it was two-fold. First that the receipt contained in the body of the deed, and again endorsed on the deed was not conclusive that the defendant had received the money. He argued that the vendor had received only a portion of the purchase money and (his second ground) that the balance was held by Mr. Yiu as agent for the plaintiff to discharge the mortgage. He maintained that the property in that part of the purchase price never passed to the defendant.

12. Mr. Swaine referred to 11 Hals. 3rd Edition, paragraph 683 and Burchell v. Thompson⁽¹⁾ in support of his contention that the receipt clause is not conclusive that the money has been received. Accepting that to be the position one must however look to the facts of the case and isolate the issue. It is an undisputed fact that the plaintiff paid all the money to Mr. Yiu who was the solicitor for both parties; the defendant in his affidavit admits the payment. The question is did he hold the money or the balance as agent for the plaintiff or the defendant. In deciding this point one might visualise Mr. Yiu in three capacities: stakeholder, solicitor for the plaintiff and solicitor for the defendant. As stakeholder it was his duty to retain the deposit to be returned to be the plaintiff if the sale fell through or hand it over to the defendant on completion. Neither of the parties had any individual control over it. Although that was the position the defendant did exercise control over the deposit in that he persuaded the stakeholder to hand over some of it. It is clear that to that extent the defendant considered Mr. Yiu as holding the money on his behalf.

13. As solicitor for the plaintiff Mr. Yiu received an instalment of the purchase money from the plaintiff. If he were acting for the plaintiff alone the defendant would have had no right to obtain any of it until the sale was closed and the defendant would have no right to exercise any control over it. Again, however, the defendant did exercise control over it to the extent that he received a portion of it to his own advantage. Once more it seems quite clear that the defendant considered that Mr. Yiu having got the money into his possession held it as agent for him and that the money was subject to his direction. The same applies to the final instalment. In other words the defendant considered Mr. Yiu as the person to receive the money on his behalf. When he executed the assignment the defendant called for and received the balance of the purchase price which would have been due to him had he discharged the mortgage. The entry in the Clients Voucher refers to that balance as the refund of Principal on the re-assignment. That would suggest that that mortgage had been discharged and the property re-assigned to the defendant.

14. It was Mr. Swaine's contention, as I understand him, that there is an obligation on a purchaser to ascertain and discharge all encumbrances on the property he is buying and then pay the balance to the vendor. It was in pursuance of that obligation, he argued, that the plaintiff paid the purchase price to his solicitor. He argued that when Mr. Yiu received the money he did so as agent of the plaintiff to discharge the mortgage and pay the balance to the defendant, and that is what the he should have done. He maintained that the balance that remained in the hands of Mr. Yiu after paying the defendant was the property of the plaintiff, and his solicitor held it was his agent to discharge the mortgage.

15. In support of his contention that a purchaser is obliged to ascertain and discharge encumbrances before handing over the balance Mr. Swaine referred me to paragraph 628 in Vol. 34 of Halsbury 3rd Edition. It reads:

"Where the property is subject to encumbrances which are to be discharged out of the purchase money, the purchaser must pay the proper amounts to the encumbrances and the balance to the vendor. A person who disregards an encumbrance of which he has knowledge, and pays the vendor without the consent of the encumbrancer, is liable to the latter to the extent of such payment".

With respect I do not think Mr. Swaine can get much support from that paragraph for his contention or from the cases referred to in it. That paragraph merely states that where an encumbrance is to be discharged out of the purchase money any person who pays over the purchase money without discharging the encumbrance does so at his peril. There is no obligation on him to do so, but if he does not then he must pay the encumbrancer if the vendor fails to do so.

16. In the instant case there was an obligation on the part of the defendant to assign the property free from encumbrances. That obligation was contained in the agreement for sale in pursuance of which the assignment was executed on the 1st September, 1975. It is true that the purchaser might have insisted on seeing a re-assignment to the vendor, or discharged the mortgage himself but he was not obliged to do so. He was entitled to rely on the vendor to discharge all encumbrances. It was, I am satisfied, the intention of the defendant to discharge the mortgage and the documents exhibited bear this out.

17. The defendant clearly considered Mr. Yiu his agent to receive the money on his behalf and to do all that was necessary to hand over as agreed the property in exchange. That he gave such directions and exercised control over the money is manifested by the payment by Mr. Yiu to the defendant of part of the purchase money. Indeed, when the defendant executed the assignment on the 1st September all the purchase price had been paid (and its receipt conclusively acknowledged by him) to the person authorised by him to receive it. It had been received by him to be handed over in exchange for the deed; and when the defendant handed over the executed deed to Mr. Yiu, he did so with the intention that Mr. Yiu would hold the purchase money to his order and hold or hand over the deed for or to the plaintiff as his solicitor and agent. At that time there was an obligation on the defendant to discharge the mortgage. It was his duty under the agreement to deliver the property free from encumbrances, and as he was aware that his solicitor was in possession of all the purchase money, to see that it was applied to discharge all encumbrances. In the ordinary course of conveyancing practice the vendor should have a re-assignment executed by the mortgagee to be handed over by him on the closing of the sale or by a representative of the mortgagee if the mortgagee had not already been paid by the mortgagor but is to be paid out of the purchase money. Where a solicitor acts for both sides notionally the same thing happens and when the solicitor has both the money and the executed deed he holds the money as solicitor for the vendor and the deed as solicitor for the purchaser.

18. The only real issue in this case is whether or not Mr. Yiu held the money paid by the plaintiff as agent of the plaintiff or the defendant; after the sale was completed he would no longer be a stakeholder. In my opinion there can be no doubt that he held the money as agent for and on behalf of the defendant.

19. As the only real issue was one of fact I saw no reason why the case should be sent for trial by a judge and I made the order to which I have earlier referred.

20. As to the matter of the assignment being in escrow this was a point that was not pursued with any enthusiasm nor could it have been. A document is in escrow when its purpose is suspended pending the fulfilment of some condition. In the present case nothing so far as the completion of the assignment itself on the part of the defendant remained to be done. He had delivered up the premises, the final purpose of the assignment.

Representation:

Mr. Mills-Owens (Johnson, Stokes & Master) for plaintiff.

Mr. Swaine Q.C. & Mr. Kotewall (Philip K.H. Wong & Co.) for defendant.

(1) (1920) K.B. 80