Liu Man Bun and Another v. Li Yek Leung

CACV000171/1985

BETWEEN

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Coram: Sir Alan Huggins, V.-P., Cons, V.-P. & Penlington, J.

Date of Hearing: 11 & 12 March 1986

Date of Judgment: 27 March 1986

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. There were two actions relating to a contract for the sale and purchase of a flat. The first was by the Purchasers for specific performance, damages, interest and further or other relief, whilst the second was by the Vendor for declarations that the Purchasers had wrongfully repudiated the contract, that the deposit had been forfeited and that the Vendor was entitled to resell. The actions were consolidated and it was ordered that the Statement of Claim in the second action be treated as a Defence and Counterclaim. The question we have to decide is whether the Purchasers paid the purchase price in full.

2. The difficulties which have arisen would never have occurred if the parties had been represented by separate solicitors throughout - or at least from the moment when it became apparent that there was a conflict of interests. As it was, the same solicitors acted not only for the Vendor and the Purchasers but also for a sub-purchaser (a company in which one of the Purchasers was interested) and for a bank which was advancing part of the purchase price. There is no doubt that the entire purchase price came into the hands of the solicitors, and what was in issue was whether they held the money as agents for the Vendor.

3. The material provisions of the Agreement, as subsequently altered, were:

Shortly after the conclusion of the Agreement the Vendor began to regret having entered into the transaction and sought to persuade the Purchasers to agree to a rescission. They refused to do so. Thereafter the Vendor embarked upon a campaign of looting and destruction at the premises either with a view to dissuading the Purchasers from proceeding with the deal or out of mere spite. He succeeded in making them very angry, but they nevertheless instructed the solicitor who was handling the matter to proceed with the completion. To this end the Purchasers arranged the payment of $191,300 to the solicitors and had obtained $895,500 from the proposed Mortgagee. Together those sums covered the balance of the purchase price.

4. On Sunday 30th September, after a 'delay caused by the Vendor, the Vendor and the Purchasers attended at the office of the solicitor to effect completion. The Assignment had already been executed by the Purchasers. The solicitor, who had paid into his clients' account the moneys he had received, had drawn five cheques on those accounts in favour of the Vendor: they were

All five cheques were handed by the solicitor to the Vendor. The Vendor executed the Assignment and the accompanying receipt for the entire purchase price, which included the deposit previously paid. He duly endorsed the first three cheques to the intended recipients. The solicitor asked that all five cheques be returned to him and the Vendor complied with that request.

5. At this point someone - it is not clear who - suggested that the parties should go to the flat to see just what damage had been done by the Vendor. The Purchasers were anxious to see inside the flat. The Vendor, on the other hand, was worried about the money, but the solicitor replied: "Well you don't have to worry about the money because I have the cheques". The Purchasers' worst fears were realized: much damage had been done.Nevertheless on their return to the solicitor's office they still did not give instructions that completion be delayed or aborted. There were angry exchanges, including some between the solicitor and the Vender, and the solicitor eventually broke up the meeting after handing back to the Vendor the cheque for $895,500 and telling him that he (the solicitor) would hold the cheque for $173,430 as stakeholder pending settlement of the Purchasers' claim in respect of the damage. The Vendor objected to this retention of the cheque for the smaller amount but left the office when the solicitor threatened to lock him in if he did not leave.

6. On the next day the Vendor did what he should have been advised to do earlier - he went to other solicitors. Correspondence took place, in the course of which the original solicitor stated that he was writing on instructions from the Purchasers. In their evidence the solicitor and one of the Purchasers said that some of what had been stated in the letters was not written on instructions from the Purchasers: it seems' that the solicitor was taking it upon himself to decide what was best for the Purchasers, although he was, perhaps, not viewing the matter with the objectivity and appreciation of the consequences which were desirable. In my view nothing turns upon this. The only relevance of the subsequent correspondence is that it may assist in assessing the credibility of the witnesses as to what had happened up to 30th September. The judge in general accepted the evidence of the solicitor and in my judgment the subsequent correspondence does not establish that his findings must have been wrong.

7. As to the earlier events the judge inclined to the view that, by virtue of the terms of the agreement,

He did not find it necessary so to decide, because

It is this conclusion which the Appellant attacks. Mr. Chadwick submits that, if the money was not held by the solicitor as the Vendor's agent on 28th September, nothing happened thereafter to change the situation by the 30th.He rightly points out that the case was never presented on the basis that the purchase price was paid, or tendered, directly to the Vendor himself at the meeting on 30th by the solicitor, then acting as the Purchasers' agent.

8. In my judgment the answer to theVendor' s contention lies in the principle relied upon by Trainor, J. in Chu Yen Estates Ltd.v HO Sau-ki 1976 H.K.L.R. 863, namely that a solicitor acting for both parties to a conveyance on sale who has in his possession unconditionally both the purchase price and an executed assignment holds the former for the vendor and the latter for the purchaser once the agreed date for completion has arrived. In the present case the sale was completed when the Vendor executed the Assignment and handed it back to the solicitor, for the solicitor already held the purchase money. It is clear from the judgment when read as a whole that Mortimer, J. found as a fact that the money was held unconditionally, despite the comment by one of the Purchasers "Well, even when you take a banknote, you examine it before you use it" (a comment inaccurately quoted by the judge in his Judgment): the judge was satisfied that the Purchasers had given unconditional instructions to complete and to argue about the damage later. Of course, for reasons which I shall indicate, the money remained the Purchasers' money until completion and to that extent was "recoverable'', but that meant no more than that it was open to the Purchasers to alter their instructions in relation to the money until it was paid over. They did not do so. When the cheques were handed to the Vendor for inspection", the purchase price had already been paid. It matters not what the solicitor understood as to the identity of the person on whose behalf he was holding the money or that he subsequently dealt with it in a manner inconsistent with its being that of the Vendor. It would seem that he never stood back to consider the steps which were being taken and the effect which each would have on the rights of the parties: with the best will in the world he was trying to bring to a successful and fair conclusion a transaction to which he believed both parties were bound. It was the solicitor's suggestion that he keep some of the money as stakeholder, and he must be deemed to have done so as the Vendor's solicitor. That would have been a perfectly reasonable attitude to adopt, since he must have appreciated that the Vendor would be liable to pay for at least the damage he had admitted having caused. When the suggestion was rejected by the Vendor, the solicitor probably had no good reason for not handing over to him the balance of the purchase price, but we are not here concerned with the relationship between the Vendor and his solicitor, or, indeed, with any claim the Vendor may now have against the Purchasers for money had and received to his use. The significant fact is that the Purchasers had paid the purchase price.

9. It is then argued that, if the solicitor held the Assignment on behalf of the Purchasers, their claim for specific performance was misconceived. That seems to me to depend upon whether the Vendor had, on his part, done all that he was required to do under the Agreement. This was not a sale of a freehold and no livery of seisin was involved. The question is whether the Agreement imposed a duty on the Vendor to deliver possession or merely to execute an assignment which would give the Purchasers a right to possession, enforceable by an action for a declaration or an ejectment, as appropriate. Paragraph 7 of the Statement of Claim alleged failure to complete and/or failure to deliver vacant possession. Neither side addressed us at length on this aspect of the case, and it has no bearing on the justice of the matter.

Clauses 13 and 14, which I have set out previously, have no relevance to the present issue, for they are concerned with moneys received by the solicitors as agents for the Vendor. I do not read cl.13 as though it said "all moneys received by P.H. Sin & Co. in relation to this agreement shall be deemed to be received by them as agents for the Vendor". Very clear words would be necessary to show such an unlikely intention, which might be highly prejudicial to the Purchasers. Indeed, if that were the correct interpretation, the moneys became the Vendor's by 18th August 1984, the original date for completion, by which the full purchase price was in the hands of the solicitor, although it was subsequently repaid pending the new completion date. These moneys were held by the solicitors as agents for the Vendor only when the executed Assignment was passed to them. I accept that cl.5 contemplated completion in the presence of both parties, and that this was not to be a "Hong Kong style" completion as discussed by the Privy Council in Edward Wong Ltd. v Johnson, Stokes & Master 1984 A.C. 296, where the purchase price is paid against an undertaking by the vendor's solicitor to forward the necessary documents of title. That did not alter the fact that this solicitor was acting for both parties. It is arguable that, if the Purchasers were "to have possession", that could only be on the basis that the Vendor was to deliver possession, which he has not done. That may be a somewhat forced interpretation of cl.3, but it would justify the judgment entered. If that be wrong, then clearly the Purchasers were entitled under the prayer for further and/or other relief to declarations that the Assignment had been completed and that the Purchasers were entitled to possession from the time of completion.

10. No point was taken in the court below that the sum of $10,000 which the Vendor agreed to pay to the Purchasers as compensation for the postponement of the date of completion had   already been paid to them when the Purchasers accepted a cheque drawn in favour of the Vendor and endorsed over to them. That cheque was never presented, although it could have been. This was just one of the consequences of the muddle which occurred.

11. I would dismiss this appeal and make an order nisi that the Respondents have their costs in this court.

Cons, V.-P.:

12. I entirely agree.

Penlington, J.:

13. I also fully agree with my Lord Huggins that the difficulties of this matter could and should have been avoided when there was the first suggestion that the vendor was reluctant to complete. He should have been told that he must consult another solicitor to avoid the exact situation which in fact arose. I have always had the gravest doubts as to the propriety of one firm of solicitors acting for both vendor and purchaser at all but most certainly it is wrong to do so once a solicitor is not in a position to offer competent advice to each party as to his rights. That must have been the case as soon as the vendor indicated he wanted to rescind the agreement.

14. Clause 13 of the agreement was designed to overcome the problem which arose in Edmond Wong Ltd. v. Johnson Stokes and Master when funds were paid to the vendor's solicitor in exchange for the usual undertaking to produce registrable documents of title - the "Hong Kong style" of completion. If there is default in such production, the purchaser may claim that he has paid the purchase price and has a right to possession.

15. The question is whether the solicitor ever received the moneys as agent for the vendor and, if so, when. I entirely agree with my Lord Huggins, V.-P. when he says that clause 13, while it makes the solicitor the vendor's agent, does not mean that the moment funds are paid into his firm by the purchaser they are then deemed to become the property of the vendor. The funds are paid to the solicitor by the purchaser and his mortgagee. Normally he would deliver them to the vendor's solicitor in exchange for the usual undertaking or, rarely in Hong Kong, for actual documents. Here, as he is acting also for the vendor, the solicitor did not do so but prepared an assignment for execution by the vendor. In the meantime, although he is authorised by the vendor to act as his agent to receive the money, he has not in fact done so. There can be no question of a solicitor giving himself his own undertaking so he holds the funds pending receipt by him, as the purchaser's solicitor, of a duly executed assignment. The fact that he also prepared that assignment and obtained the vendor's signature on it as his solicitor does not affect the position, artificial though it may be.

16. At the moment the assignment is handed over to him as the purchaser's solicitor, he then holds the purchase money as the vendor's solicitor, as decided in Chu Yen Estates v. Ho Sau-ki. That happened in the solicitor's office on the 30th of September. Even though the vendor did not retain the cheques he was then entitled to do so.

17. It may be that the purchasers should have sought a  declaration that they were the owners of the flat rather than specific performance but that has not caused the vendor any injustice. He was well aware of the case he had to meet.

18. I also would dismiss the appeal with costs.

27th March 1986

Representation:

John Chadwick, Q.C. & Patrick Fung for Appellant.

John Swaine, Q.C. & Patrick Chan for Respondent.