Lo Chi Wai Arthur v. Liu Wing Cheung Wilfred and Another
Read the full judgment text of HCA 11459/1982 on BabelCite. This High Court CFI judgment.
1. The plaintiff agreed to buy the defendant's flat and car parking space. He says that the defendant is unable to show a marketable title to either. He now claims back a deposit paid by him to the defendant. The defendant contends that he can show a marketable title and counterclaims specific performance of the agreement or damages. In the other half of the action, the defendant alleges against the third party that it is because of its breach of contract or negligence as sollcitors that, if it
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HCA011459/1982 Action No. 11459 of 1982 IN THE HIGH COURT OF JUSTICE BETWEEN
Coram: Hon. Mantell J. Dates of Hearing: 12th - 14th December, 1983. Date of Delivery of Judgment: 23rd December, 1983. ---------------------- J U D G M E N T ----------------------- 1. The plaintiff agreed to buy the defendant's flat and car parking space. He says that the defendant is unable to show a marketable title to either. He now claims back a deposit paid by him to the defendant. The defendant contends that he can show a marketable title and counterclaims specific performance of the agreement or damages. In the other half of the action, the defendant alleges against the third party that it is because of its breach of contract or negligence as sollcitors that, if it be the case, he is unable to offer a marketable title. The third party admits breach of contract and negligence but says that even so the defendant is able to offer a marketable title or that, if he is not, it is his own and not its fault. Then he submits that no damage has resulted from his admitted breach of contract and negligence or that at any rate on general principles and by reason of the Defendant's failure to mitigate, it is much less than that claimed by the Defendant. 2. There really is little or no conflict on the facts. In 1973, Mr. Liu took an assignment of the residue of a 75 year lease of a flat and two car parking spaces in a block of flats in Pokfulam Road. There are 48 flats in the block, some of which have one car parking space and others two. The flat in question has two car parking spaces. The assignment took a form which is common place in Hong Kong. It assigned and confirmed to Dr. Liu a number of shares in the building as a whole to which was coupled the right to use the flat and the car parking spaces. These are the relevant words:
3. Apparently, the asignees of each of the 48 flats took five equal undivided 241st parts or shares regardless of whether they had one or two car parking spaces. If my arithmetic is right, that left one share over, which was retained by the vendor. The assignment in common with all other assignments of flats in this multi-storey block was made subject to Dr. Liu entering into a deed of mutual covenant. Clause (4) of the recital explains the scheme, which as I have said, is common place in Hong Kong:
And as to the purpose of entering into the deed of mutual covenant, clause (6) continues:
Clauses (18) and (19) of the covenant read as follows:
Now, for a number of years prior to the events with which I have been concerned, Dr. Liu had let or licensed the use of his second car parking space first of all to a gentleman whose name has not featured in this action and more recently to a Mr. Peter George Brown who was and is a partner of the third party. And although it has not been a matter for me to decide, it may well be that in so doing, Dr. Liu was in breach of clause (19) of the deed of mutual covenant. In the summer of 1982, Dr. Liu had it in mind to sell his flat and it occurred to him that he might do no better than to sell one of the car parking spaces separately from the rest of his property. So on 22nd July 1982 he wrote to Mr. Brown, who was already using the car parking space and with whom he had, naturally enough, spoken about the matter, in these terms:
Mr. Brown replied on 26th July 1982:
Mr. Brown's firm being solicitors, it was perhaps not surprising that they should be asked to prepare the necessary documents which included a deed of assignment dated 4th August 1982. By that deed of assignment, Dr. Liu as vendor assigned to Mr. Brown as purchaser:
The assignment was expressed to be subject to and with the benefit of the deed of mutual covenant but so far as I have been told, Mr. Brown did not, at any time thereafter, enter into a deed of mutual covenant with the other owners of Pokfulam Court. Soon after, Dr. Liu found a purchaser for the flat and the remaining car park in the person of the plaintiff, Mr. Arthur Lo. Agreement was reached as to the price and on 20th September 1982, Mr. Lo paid $30,000 to Dr. Liu by way of deposit. The receipt which is signed only by Dr. Liu appears at page 54 of the main bundle of agreed documents. Solicitors for Mr. Lo took the point in correspondence with the third party, who for a time seemed to have been acting for the defendant, that by reason of the prior assignment of a car port to Mr. Brown, it was no longer possible for the defendant to show a marketable title to that part of the property which had been retained by him. In due course, on 29th November 1982, protestation from the third party availing naught, the plaintiff issued proceedings for the return of his deposit, I should make it clear that by then the third party had very properly handed over the conduct of the defendant's affairs to other solicitors. 4. When the matter was called on before me, Mr. Wong for the third party conceded at once that the third party was liable to the defendant in the terms of the particulars of negligence, breach of contract and/or duty as set out in paragraph 14 of the Statement of Claim of the Defendant against the Third Party. He made it quite plain that his concession did not include any admission that the defendant was left without a marketable title and in turning to face the case of the plaintiff, Mr. Yu for the defendant was well pleased to have Mr. Wong as his ally. 5. The plaintiff's argument proceeds thus. The alienation of the second car parking space was a clear breach of clause (19) of the deed of mutual covenant. That, at the very least, being an undisclosed prior breach at the time of the agreement to buy is sufficient to permit the plaintiff to withdraw. But the main thrust of Mr. Chan's submission is that the assigning out of the car parking space has made it impossible for the defendant or any purchaser of his retained interest to abide by the negative covenant contained in clause (18) (a). He submits that the right to the exclusive use, occupation and enjoyment of the flat and car parking space depends upon the holding of the five undivided shares and the owner is bound not to dispose of either separately. By assigning out one of the undivided shares, the defendant has encumbered his right to dispose of the use, occupation and enjoyment of the flat and car parking space whether or not he purports to assign at the same time the four undivided shares which he has retained. Such a construction, Mr. Chan says, is entirely consistent with the general intent of the deed of mutual covenant and with this scheme for dividing up multi-storey blocks of flats so special to Hong Kong in that it militates against the further partitioning of units and the proliferation of ownerships. Subject to the granting of short leases, its effect is to make the "bundle of rights" acquired by any owner non-severable. So as Mr. Chan puts it at the very lowest the defendant is quite unable to satisfy the court "beyond reasonable doubt that the plaintiff would not be at risk of a successful assertion against him of the incumbrance".(1) For present purposes, adopting the arguments of Mr. Wong, Mr. Yu for the defendant submits that clause (18) (a) is not to be construed in the manner contended for, and that the separation of the undivided shares does not result in any incumbrance upon the right to assign the beneficial interest in the flat. Otherwise, he argues, what is the point of clause (18) (b) and clause (19). The only breach, says Mr. Yu, is that under clause (19) which may result in his client being unable to give the usual warranty that there has been no breach of covenant; but it is a matter which is catered for in the case of the purchaser more than adequately by an indemnity as to damages. Therefore, he says, it is not a clog or incumbrance upon the title. If he is wrong, in relation to the construction of clause (18) (a), he submits, then it is a covenant against alienation and void. 6. In my opinion, Mr. Chan is right. I do not have to decide whether an assignment in breach of clause (18)(a) would produce an operative alienation in the legal sense. It is sufficient if I find, as I do, that any such alienation would carry with it the continuing risk of an action for breach by other parties to the deed of mutual covenant and the real risk that future attempt at assignment might be blocked by injunction. I am quite satisfied that in any practical sense, therefore, the defendant is not able as matters stand to offer a marketable title, the title does carry an incumbrance and it is not to be cleared by any offer of indemnity or undertaking as to damages. Nor do I think that any different result is reached if clause (18)(a) is construed as preventing any operative alienation in breach of its terms. The restrictions against alienation have always related to estates in feesimple, the rationale being that any such restraint is repugnant to the absolute interest conveyed. The rule as such has no application to leasehold interests and, in any event, what is here restrained by covenant is not the alienation of the property itself or even of part of the property but of the severance of the legal estate and the beneficial interest. 7. It follows that the plaintiff must succeed in his claim for the return of the deposit and the defendant fail in his claim for specific performance and damages. Where does that leave the third party. It does, of course, remove one of its main planks of defence but Mr. Wong is, by no means, disarmed. He says that the defendant had already lost his marketable title before any negligent intervention by the third party, firstly, as a result of having let out the second car parking space for a number of years, in breach of clause (19) of the deed of mutual covenant, secondly and more cogently, as a result of the letters between himself and Mr. Brown, already reproduced, which brought into existence a binding agreement to assign the car parking space and so created the injury to the defendant's title which the third party merely compounded by its subsequent actions. I do think that argument will wash. The first of the defendant's breaches was not such as to result in any incumbrance on the title. The second was capable of being remedied at the time when the third party undertook their obligation to advise. Their admitted failure "to advise the defendant properly or at all on the effect and consequences of entering into and/or proceeding with the assignment of one equal undivided 241st parts or shares" meant that the defendant did proceed to execute the assignment of the undivided one share and the use of the car parking space. Before that it was still open to him not to proceed albeit at the cost of a claim for damages which is what Dr. Liu would have done, had he been advised that by proceeding with the assignment to Mr. Brown, the result would be an incumbrance upon the retained portion such as would make it impossible for him to show marketable title. So, Mr. Wong was obliged to withdraw to his last redoubt-damages. And at this point, I would like to pay tribute to what I consider to be the extremely able and helpful manner in which Mr. Wong made all his submissions. His argument on damages was twinfold. In the first place, he says that if what has been produced by the third party's negligence is a breach of covenant which subject to disclosure and the usual indemnity does not produce a clog on title, the damages are nominal as the difference in value between the title unimpaired and after the assignment to Mr. Brown is negligible. That argument fails, of course, as a result of my finding as to the nature of the incumbrance. His second argument concerns mitigation of damage. That too is twinfold. He submits that the defendant did not proceed against the third party with such expedition as would have reduced the damages occasioned by a falling property market. But the fact is that the third party was aware of the situation at a very early date and there were steps which could have been taken to protect its position. In any event, I am not satisfied that there was any delay in bringing the third party proceedings having regard to the fact that negotiations were in progress between all three parties during the relevant period. The second branch of his argument is that the defendant has failed to mitigate his loss in neglecting to adopt suggestions made by or for the third party in open correspondence or to make suggestions on his own behalf for reselving the problem. The first suggestion coming from the third party which appears early on in open correspondence had to do with the conveying of their respective interests by the defendant and Mr. Brown to a shelf company and then an assignment by the shelf company back to Mr. Brown of his original interest and either to Dr. Liu or to Mr. Lo of the four shares plus the use of the flat and the one car park. It seems to me that the suggestion if adopted would have done nothing to resolve the difficulty. In my judgment, the only practicable solution was to reverse the assignment to Mr. Brown. That could be done by agreement or, possibly, by action. I do not think that it was incumbent upon the defendant, and certainly not before the resolution of the present action, to embark upon an action, the outcome of which was by no means certain, to set aside the assignment to Mr. Brown. But on 24th October 1983, solicitors for the third party did write indicating that they had instructions from Mr. Brown to offer to reassign to the defendant for the same price at which he had brought, and that offer remains good until today. In my judgment, that offer, if taken up, would have the effect of clearing Dr. Liu's title to the whole property which would then be available to be offered for sale without any such incumbrance as would make the title unmarketable. So, I do hold that Dr. Liu was bound to take up that offer to mitigate his loss with what result we shall see when I come to consider the question of measure of damages. 8. Here it is necessary for me to interpose a few words, about an interesting situation which arose when Mr. Wong was seeking to lay before me certain open correspondence in support of his submission on failure to mitigate. His submission being that the defendant had done nothing in the way of seeking to resolve the difficulty over title, Mr. Yu claimed the right to open up a series of without prejudice letters which, he said, might throw an entirely different light on the matter. That was resisted by Mr. Wong who reminded me of the general and well established principle, conveniently set out in the current edition of Phipson on Evidence at paragraph 679:
Now, whilst I do not doubt the existence of the general principle as stated, it does appear to me that there may be exceptions. One was adverted to by Lord Justice Lindley in a classic case on the subject Walker v. Wilsher:(2)
That may be said to relate simply to the putting in evidence of the fact that letters were sent and of their dates. But in Jones v. Foxall,(3) the Master of the Rolls, Sir John Romily said:
In his last comment, the Master of the Rolls was referring to the increasing tendency to place without prejudice correspondence before the court and his attitude is one which has been followed by judges ever since. However, the passage is cited as support for the proposition that sometimes the contents of without prejudice letters will be looked at. In my judgment, it is possible to conceive of circumstances where one party alleges that something has not been done when it would be quite unfair to prevent the other party answering the allegation by pointing not only to the fact of without prejudice correspondence but also to its content. So it might well have been the case here and whether one proceeds to that conclusion purely on grounds of fairness or on the basis that by making the allegation, the party making it has waived any privilege to which it is entitled hardly matters. In this case, although I did admit the correspondence "de bene esse", it has not been necessary for the defendant to have recourse to it or for me to regard it. I have come to the conclusion that the third party has failed to discharge the burden resting upon it to show that there was any failure to mitigate prior to the letter of 24th October 1983 and it is not really contested by the defendant that upon receipt of that letter, it was possible for the defendant to begin to take steps to resolve his difficulty over title. 9. It is said that the measure of damages is to be assessed at the date of the breach. That is true in the sense that it is those damages which are reasonably foreseeable at that date which are recoverable and not loss or damage which only becomes apparent subsequently. At the date of the assignment to Mr. Brown, it was reasonably foreseeable that the clog on the defendant's title might well result in loss in the event of fluctuations in the property market which did, in fact, occur and for which the third party must be responsible. They have been unfortunate in that the fall in property values has been steeper than, perhaps, might have been anticipated and the fact is that the flat of Pokfulam Court is worth considerably less than it was 15 months ago. The evidence of Mr. Moffoot from Collier Petty is that on 4th August 1982, the flat with two car parks was worth $1,760,000 and in October 1983, $1,260,000. It follows that, doing the best I can on the evidence before me, the defendant's loss arising from the third party's negligence and/or breach of contract is $500,000. He also lost the use of $1,720,000, being the agreed sale price to the plaintiff, but not for the whole period. In my judgment, the starting date for interest to run is that upon which the sale of Mr. Lo went off and again, doing the best I can on the evidence before me, I take that to be the date of the issue of the plaintiff's writ. As to the terminal date and the rate of interest, I shall hear submissions, failing agreement between the parties. 10. Judgment for the plaintiff against the defendant in the sum of $30,000 with interest at agreed rate of 13.5% per annum from 20th September 1982 to date of judgment and costs. 11. Defendant's counterclaim against the plaintiff dismissed. 12. Judgment for the defendant against the third party in the sum of $500,000 with liberty to apply on question of interest, and the defendant to have costs against the third party of his claim and such costs as the defendant is called upon to pay the plaintiff. 13. Payment out of sum of $2,000 in court to the defendant's solicitors within 7 days.
(1) M.E.P.C. Limited v. Christian-Edwards and Others [1981] A.C.205 (2) [1889] 23 Q.B. 335 at p.338 (3) 15 BEAV. p.388 at p.398/397 Representation: Warren Chan (M.K. Lam & Co.) for Plaintiff. Benjamin Yu (Walter Yeung & Co.) for Defendant. Ronny Wong (Deacons) for third party. |
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