EARNING CODE LTD. v. LAU KING LIN and Another

1991, No. A3874

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In this action, the Plaintiff company, the purchaser of a property in Heng Fa Chuen, seeks an order for specific performance of a Sale and Purchase Agreement in respect of the property against the vendor, the 1st and 2nd Defendants. In the alternative, the Plaintiff seeks damages in lieu of specific performance or relief against forfeiture of a deposit paid pursuant to the Agreement.

2. The Defendants maintain they were entitled to rescind the Agreement and forfeit the Plaintiff's deposit by reason of the Plaintiff's failure to tender to the vendor the balance of the purchase price in the manner specified within the time stipulated in the Agreement for Sale and Purchase as varied by subsequent agreement.

Facts

3. The Sale and Purchase Agreement was dated 20th March 1991. The agreed purchase price was $1.22 million. In the Agreement, the vendors' solicitors acknowledged receipt of two deposits totalling $122,000.00 from the purchaser. It was provided that the balance of the purchase price, $1,098,000.00, should be paid on or before the completion date, namely 10th day of April 1991. It was also provided that the sum should be paid either by cashier order or the purchaser's solicitors' cheques (clause 2), that time should be of the essence of the Agreement (clause 4) and that the word "day" should, in the case of a week day, mean from 9.30 a.m. to 4.30 p.m. (clause 25(b)).

4. This is no dispute that (following a letter dated 28th March 1991, from the Plaintiff's solicitors, Messrs Chan, Lau and Wai, to the Defendants' then solicitors, Messrs Kenneth K.C. Wong and Co., requesting all relevant title deeds and documents to enable them to prepare a draft assignment) an agreement was reached on the telephone to postpone the completion date. That agreement, which was recorded in writing in a letter dated 8th April 1991 from the vendors' solicitors, provided that completion should take place "within seven days after all the title deeds and documents in respect of the ... property", had been delivered to the Plaintiff's solicitors. I shall refer to that agreement as the "Variation Agreement".

5. The following day, 9th April 1991, the Defendants' solicitors sent a letter to the Plaintiff's solicitors saying "We send you herewith the relevant title deeds and documents in respect of the above property ...". Thirteen documents were sent with the letter.

6. If, as the Defendants contend, those 13 documents amounted to "all the title deeds and documents in respect of the ... property" to which the Plaintiff was entitled, then 16th April would have been the new completion date. The Plaintiff does not accept that the thirteen documents comprised all the documents to which it was entitled, but does concede that if the court was satisfied that those 13 documents were sufficient, then the deadline for completion would have been 4.30 p.m. on 16th April 1991.

7. On the 15th April 1991, the Plaintiff's solicitors sent to the Defendants' solicitors a draft assignment for their approval and stated in a postscript "Please let us have a certified copy of the Modification Letter Memorial No. 3750810 for our approval.". Although a copy of one Modification Letter (Modification Letter Memorial No. 3264696) had been sent with the letter of 9th April, a copy of Modification Letter Memorial No. 3750810 had not been sent. It is the Plaintiff's contention that the document was a document of title to which they were entitled before completion and that time for completion did not start to run under the Variation Agreement until delivery of that document to them.

8. On 16th April, the Defendants' solicitors returned the draft assignment which they had approved and gave instructions as to how the cheques for the balance were to be split. There were to be four cheques: one to the mortgagee, one to the Defendants' solicitors and one each to the two Defendants.

9. On the same day, the Plaintiff's solicitors wrote a letter to the Defendants' solicitors enclosing four cheques. In its material parts it reads:

"in order to complete the purchase of the above property on today we enclose the following cheques .... The above cheques are sent to you against your firm's personal undertaking ... to send us within 21 days from the date of your receipt of this letter ... certified copy Modification Letter Memorial No. 3750810 ... your undertaking will be deemed given unless you advise us to the contrary in writing as soon as practicable..."

10. This letter was delivered at about 4.30 p.m. that day, but the cheques were rejected because three of them were not drawn by the Plaintiff's solicitors as stipulated by the Sale and Purchase Agreement but by the Plaintiff. Later that day, there was an attempt to replace them with cheques drawn by the Plaintiff's solicitors.

11. The cheques were re-tendered the following morning. The Plaintiff's solicitors pointed out that the 7 day time period for completion did not start to run until production of all the deeds including a copy of the Letter of Modification Memorial No. 3750810, which had not been sent. The Defendants' solicitors rejected the cheques on the ground that the Plaintiff had allegedly breach the Sale and Purchase Agreement by failing to complete by 4.30 p.m. on 16th April and they stated that the deposit of $122,000.00 was forfeited.

Was the Letter of Modification a "document of title" to which the Plaintiff was entitled

12. The first issue to determine is whether Letter of Modification Memorial No. 3750810 was a document of title to which the Plaintiff was entitled. This is relevant in two ways :

1. A vendor of property must not only pass good title but show good title before a purchaser is obliged to complete. If the Letter of Modification was a document a copy of which the Plaintiff was entitled to require as proof of title, it would be entitled to refuse to complete until its production unless it had accepted the Defendants' good title.

2. The time for completion would not start to run under the Variation Agreement until a copy had been delivered.

13. The case for the Plaintiff is that the Letter of Modification in question was a document of title to which the Plaintiff was entitled. By virtue of Section 13 of Conveyancing and Property Ordinance, Cap. 219 a purchaser of land is entitled to require as proof of title the Crown lease relating to the land sold. The land in question was originally held by the Mass Transit Railway Corporation (MTR) pursuant to Conditions of Grant. Since the definition of "Crown lease" in the Interpretation and General Clauses Ordinance, Cap. 1 defines Crown lease as including "any agreement for a Crown lease" and since the Conditions of Grant are an agreement for a Crown lease therefore the Conditions of Grant constitute a document of title. Since the definition of Crown lease includes "any instrument whereby the term of a Crown lease may have been extended or the provisions thereof varied", the Letter of Modification Memorial No. 3750810 is part of the Crown lease which the purchaser is entitled to require a proof of title under Section 13.

14. The Defendants take issue with this contention. They argue that the documents required to be produced depend upon the terms of the Sale and Purchase Agreement. By virtue of clause 20 of the Sale and Purchase Agreement various clauses in Part A of the Second Schedule to the Conveyancing and Property Ordinance, Cap. 219 are incorporated into the agreement. Clause 9 of that Part requires the vendor to furnish to the purchaser "such copies of the deeds or documents of title ... as may be necessary to prove (good) title".

15. They argue that the Letter of Modification in question is not a document of title necessary to prove such title. They point out that the Letter of Modification in question related not to the "unit", the right to occupation of which was to be assigned to the Plaintiff, but to the obligation of the grantee to erect, maintain and repair such footbridges, ramps, walkways, staircases and passenger lifts as the Director of Lands may require. Although they concede that what was to be assigned to the Plaintiff was not a delineated segment of the entire lot but rather an undivided share of the entire lot coupled with a right of exclusive occupation of a certain part (see Second Schedule to Sale and Purchase Agreement), they point to the fact that the property was sold subject to the Deed of Mutual Covenant registered in the Land Office by Memorial No. 3196410 (clause 8 and Part VI of First Schedule of the Sale and Purchase Agreement).

16. By clause 4 of Part II of the Deed of Mutual Covenant, each owner is expressed to hold his share with the benefit of certain rights and easements specified in the Deed and subject to certain rights reserved to the MTR. Clause 9 of Part II of the Second Schedule spells out a particular right thus reserved to the MTR:

"The authority and right for the MTR to negotiate and agree with Government any amendment to the terms and conditions of the Conditions or alteration or addition to the Approved Plans at the sole discretion of MTR without the concurrence or approval of any Owner and to execute any documents in the name of MTR only and/or on behalf and in the name of all or some Owners in connection therewith without the necessity of joining in any other Owner. Provided that such amendment, alteration or addition or such documents shall not materially affect or interfere with the proper use or enjoyment of any Unit by any Owner without his consent. No such amendment alteration or addition shall give the Owners any right of action against MTR. Any payments, compensation and other money in relation to or incidental to such amendment, alteration, addition or document shall be paid to and received by MTR alone and MTR shall be empowered to give a good and valid receipt therefor."

17. In other words the Deed of Mutual Covenant contemplates a large number of matters which might be undertaken by the MTR without reference to individual owners provided they do not affect their enjoyment of any unit. The matters which are the subject matter of Letter of Modification Memorial No. 3750810, say the Defendants, fall into this category. It is suggested therefore that by reason of the provisions of the assignment and the Deed of Mutual Covenant the owner of a share contracts out of an interest in parts other than the unit he is to occupy. It follows, so it is said, that the Letter of Modification is not a document of title necessary to prove the title being assigned to the purchaser.

18. I do not agree with the contentions advanced on behalf of the Defendants.

19. The terms of Section 13, Conveyancing and Property Ordinance Cap. 219 are clear. A purchaser of land is entitled to require from the vendor as proof of title to that land the Crown lease "unless the contrary intention is expressed". I am satisfied that the Letter of Modification in question was by virtue of the definition of "Crown lease" and the Interpretation and General Clauses Ordinance Cap. 1, part of the Crown lease. I am also satisfied that no contrary intention was expressed in the Sale and Purchase Agreement. In particular I do not find any conflict between the terms of Section 13 and the provisions of Clause 9 of Part A of the Second Schedule of the Conveyancing and Property Ordinance that the vendor shall furnish to the purchaser such copies of documents of title as may be necessary to prove good title.

20. The Letter of Modification is as much part of the Crown lease as its original unaltered terms. The fact that the Letter of Modification might relate to matters in respect of which the Deed of Mutual Covenant empowered another party (the MTR) to negotiate and agree alterations with the Government without the approval of any owner does mean that those matters do not relate to the title of the purchaser of an undivided share in the whole lot. Furthermore, the Deed of Mutual Covenant only gave authority to the MTR to negotiate and agree amendments to the Conditions of Grant without an owner's consent when such amendments did not "materially affect or interfere with the proper use or enjoyment of any unit by any owner". Until the purchaser saw the Letter of Modification he could not know whether or not it did affect the use and enjoyment of his unit. It is not for the vendor to decide which provisions of the Crown lease are or are not relevant to good title. The purchaser is himself entitled to look at the document and documents comprising the Crown lease and satisfy himself of the vendor's title.

21. It is noteworthy that the Letter of Modification that was enclosed with the Defendants' solicitor's letter of 9th April 1991 and said to be one of the "relevant title deeds and documents in respect of the property" namely Modification Letter Memorial No. 3264696, had no direct bearing on the use and enjoyment of the particular "unit". It related to the obligation of the grantee to complete and hand over to the Government certain Transport Interchange facilities and to make certain Government Accommodation fit for occupation and use.

22. It follows from my findings that letter of Modification Memorial no. 3750810 was a document of title to which the Plaintiff was entitled that the Plaintiff was entitled to refuse to complete until a copy was delivered and, by reason of the agreement in the letter of 8th April 1991 of the Defendant's solicitors, was entitled to delay completion up to 7 days after its delivery unless there had been an agreement to vary the Defendants' obligation or a waiver by the Plaintiff of its rights.

23. It is not disputed that the Defendants did not produce Letter of Modification Memorial No. 3750810 or a copy thereof at any time material to the issues in the trial.

24. The Defendants allege both variation and waiver.

Variation

25. The Defendants' allegation is that there was a variation of the written agreement to complete within 7 days after all the title deeds and documents had been delivered by an agreement to complete on a date certain, namely 16th April, 1991.

26. This variation is alleged to have been made orally and by conduct as a result of a telephone conversation by a Madam Lau to the 1st Defendant on 14th April 1991 and a meeting between the 1st Defendant and the said Madam Lau at Unit 3 on 4th Floor of Block 34 of the Estate (namely the unit to which the Plaintiff was to be assigned the exclusive right of occupation) at around 2.30 p.m. the following day.

27. An application to allege this further variation of the Sale and Purchase Agreement (as varied already by the 'Variation Agreement') was not made until the second day of trial (although the application was intimated in the afternoon of the first day of trial). With some reluctance I acceded to the application which was opposed by the Plaintiff. I was informed by Mr. Yau for the Plaintiff that although his lay client acting on behalf of the Plaintiff company had not seen this Madam Lau for a number of years there was a reasonable chance of contacting her. When the trial resumed some 13 days later I was informed by Mr. Yau that the Plaintiff had been unable to locate Madam Lau, but he did not wish to apply for a further adjournment to locate her.

28. As a result I have only received the evidence of the 1st Defendant Mr. Lau King Lin of the circumstances alleged giving rise to this further variation. I have however no reason to doubt his truthfulness. Indeed he appeared to be totally frank about what had occurred.

29. His evidence was that, on 14th April 1991, he spoke to a Madam Lau on the telephone. His evidence in court was that she said she was "the purchaser surnamed Lau". She was, of course, not the purchaser. The purchaser was a limited company. The 1st Defendant in evidence said that he was aware at the time of the Sale and Purchase Agreement that the purchaser was limited company. In this telephone call Madam Lau said that as completion was to take place in 2 days time, she wanted to inspect the flat the next day (15th) to "see if the flat and furniture and fixtures which were to be sold together were there and alright". The 1st Defendant agreed to meet her there on 15th August at 2.30 p.m. They met as arranged and before she left Madam Lau reminded the 1st Defendant that completion would take place the next day and that he must go to the solicitors' office.

30. The 1st Defendant said that he went to and stayed at his solicitors' office the following day between 4 p.m. and 5.30 p.m. for the purpose of completing the sale.

31. The Defendants allege that these circumstances constituted an agreement to vary the date of completion to a date certain, namely 16th April 1991.

32. I am satisfied that these conversations between Madam Lau and the 1st Defendant on the 14th and 15th April did not amount to a further variation of the agreed Sale and Purchase Agreement (as varied by the Variation Agreement).

33. The Plaintiff company had instructed a firm of solicitors to act on its behalf in relation to this transaction. No evidence has been adduced of Madam Lau's position, if any, within the Plaintiff company or any authority that may have been given to her to act for the company, nor has there been any evidence that the Plaintiff company represented or permitted it to be represented that Madam Lau had authority to act on its behalf. She told the 1st Defendant that she was the purchaser, but clearly she was not. The 1st Defendant frankly admitted that he had no idea whether the Plaintiff had authorised anyone to vary the agreement for the date of completion. I find the Defendants have failed to establish that Madam Lau had any authority to vary the Agreement as to the completion day.

34. Even if the Defendants had demonstrated that Madam Lau had sufficient authority, I would not have been satisfied that these conversations amounted to a variation of the agreed completion date. The evidence suggests that neither party had any intention of varying contractual arrangements entered into by their respective solicitors. The conversations between them was simply as to what they both then regarded their obligations to be under the existing Agreement namely to complete on 16th April.

35. It seems clear that following the letter from the Defendants' solicitors dated 9th April 1991 enclosing the 13 documents, the solicitors for both parties regarded the 16th April 1991 as the completion date. That is because both sets of solicitors then assumed that the Defendants' solicitors had supplied all the relevant title deeds and documents.

36. According to the statement of Mr. Chik Wing Keung, a conveyancing clerk with the Plaintiff's solicitors, it was only when perusing the documents of title and checking the record of property particulars as obtained from the Land Office that he found the Letter of Modification in question had not been supplied. The fact that the Defendants' solicitors were asked to supply that document by way of a postscript to the Plaintiff's solicitors' letter of 15th April suggests that it was only at this late stage (i.e. 15th) that the fact that this document of title had not been supplied was realised. It follows that Madam Lau's conversations with the 1st Defendant were premised on the mistaken understanding that the Defendants' solicitors had supplied all the relevant documents of title.

37. The 1st Defendant would have been under the same misapprehension. It is clear from his evidence that he and the 2nd Defendant were leaving all legal matters relating to the sale, including the supply of documents of title, to his solicitors.

38. Even assuming therefore that I had been satisfied that Madam Lau had authority to bind the Plaintiff company, I would have found that neither parties were intending to vary existing contractual obligations. I am satisfied that they were leaving legal matters to their solicitors.

39. I find therefore the Defendants' defence that there was a variation of existing agreements thereby making 16th April the date for completion fails.

40. In the light of this finding it is necessary for me to consider whether, as a matter of law, if I had found the parties intended to vary existing written contractual agreements such a variation would have been enforceable.

Waiver

41. The Defendants in the alternative allege that the Plaintiff by its conduct between 9th and 16th April 1991 waived its right to insist on receiving a certified copy of the Modification Letter in question before completion.

42. I would observe again at this stage, as I observed earlier, that this Letter of Modification had a dual significance. Not merely was the production of a certified copy (i) a pre-condition for completion but it also (ii) was the event that started the running of the 7 day period within which completion had to occur. In my view, a simple waiver by the purchaser of the requirement to produce any further documents of title would trigger the running of the 7 day period for completion from the date of the waiver. Therefore unless the Defendants can establish that waiver of the right to production of a copy of the Letter of Modification occurred on 9th April, they would have to go further than their allegation of waiver alleged in paragraph 10A of their Re-Re-Amended Defence. They would have to establish something more on the part of the Plaintiff than a forbearance to insist on production of a document required by the contract. They would have to establish a clear and unequivocal representation by the Plaintiff that it would not insist on the contractual 7 day completion period.I turn to the facts.

43. After the letter from the Defendants' solicitors of 9th April enclosing the 13 documents in respect of the property there was no correspondence between the parties' solicitors until the Plaintiff's solicitors' letter of 15th April in which the "missing" Modification Letter was referred to. From this silence in relation to the Modification Letter, it cannot be inferred that the Plaintiff's solicitors had varied its rights to receiving a copy of this document, particularly as such a copy was requested in the letter of 15th.

44. For the reason I have set out above in dealing with the allegation of variation, I do not find that there was anything in the conversations between Madam Lau and the 1st Defendant on 14th and 15th April that could be said to amount to waiver by the Plaintiff of its contractual rights (even if Madam Lau had sufficient authority). The 1st Defendant did not regard anything said between them as affecting their legal rights. This was a matter for their solicitors.

45. It was suggested by Mr. Lau for the Defendants that the Plaintiff's solicitors' letter of 15th April 1991 by enclosing a draft assignment for approval and seeking instructions as to the splitting of cheques constituted an implied acceptance of title. I do not find that to be the case. Any acceptance of title that might have been implied by virtue of these matters is neutralised by the specific request in the same letter for a certified copy of the Modification Letter.

46. No other acts are particularised in paragraph 10B of the Re-Re-Amended Defence as constituting waiver of the Plaintiff's right to insist on receiving a certified copy of the Modification Letter. Nonetheless, I shall deal with other matters that have been raised in argument as possibly constituting a waiver by the Plaintiff's solicitors.

47. Firstly, there were telephone conversations with the 1st Defendant about postponing the completion date from 16th April. The only conversation, apart from those with his own solicitors, of which I have received evidence is a conversation later on 15th April between the 1st Defendant and Miss Lau. She asked him to agree to postpone completion until the following day and offered to pay interest as compensation. The 1st Defendant refused. Even if the Defendants had established the authority of Madam Lau to bind the Plaintiff company and that she appeared to be waiving the need for the production of the copy of the Letter of Modification. I would have been slow to find that her conversation with the 1st Defendant could be construed as waiving the requirement for production of the copy of the Letter of Modification in view of the very close proximity in time of the letter from the Plaintiff's solicitors requesting the document. The close proximity in time should at least have resulted in the Defendants' solicitors seeking clarification as to the Plaintiff's position before relying on anything said by Madam Lau. In any event, it does not follow necessarily from the remarks of Miss Lau that she was waiving the requirements for the production of a copy of the document. Her request to postpone completion could have been premised on the basis that since the Letter of Modification was a document which it would be easy to obtain, it could be provided by the Defendants without difficulty before the deadline for completion on 16th April.

48. I would add that the fact that she was asking for completion to be postponed until the following day indicates she was unaware that under the contract the Plaintiff had seven days after the submission of documents of title in which to complete. The fact that a party to a contract may temporarily make remarks indicating he has misunderstood his rights under the contract is not a sufficient clear and unequivocal representation that he will not insist on his rights under that contract.

49. There was evidence from the 1st Defendant about conversations he had had with Miss Ho of his own solicitors in the afternoon of 15th and on the morning of 16th April. These conversation concerned whether he would agree to postpone completion. These conversations do not advance the Defendants' argument. It is unclear whether they were based upon a conversation or conversations Miss Ho had had with anyone other than the 1st Defendant, and if they had been based on other conversations, with whom and when those conversations had occurred.

50. I am satisfied therefore that the conversations between the 1st Defendant and Miss Lau and Miss Ho did not amount to a waiver by the Plaintiff of its rights to a copy of the Letter of Modification or to a waiver of its rights to a period of 7 days thereafter in which to complete.

51. Secondly, there were the events in the late afternoon of 16th April starting with the letter from the Plaintiff's solicitors enclosing 4 cheques "in order to complete the purchase of the above property on today". Three of the four cheques were personal cheques. It was said that these cheques were sent against the Defendants' solicitors' personal undertaking to send the Plaintiff's solicitors within 21 days of the receipt of the letter, inter alia, the certified copy Modification Letter Memorial No. 3750810.

What is the proper construction of this letter?

52. In construing the letter, the legal position of the parties at the time must be borne in mind. The Plaintiff had a right to a copy of the Letter of Modification and a period of 7 days thereafter in which to complete. The letter expressly states that it was sent "in order to complete the purchase". It was sent to the vendor's solicitors at 4:30 p.m. on 16th April.

53. The construction put upon the letter by Mr. Lau for the Defendants would deny the letter the efficacy it sought to have (i.e. in order to effect completion). He says it constituted a waiver of the Plaintiff's rights to the Letter of Modification and the 7 day period thereafter. It included personal cheques in breach of the Sale and Purchase Agreement and was sent at the time which they allege was the last possible moment for completion.

54. I do not find that this is the proper construction of this letter .

55. I am satisfied that viewing the letter and the enclosed cheques as a whole, the Plaintiff was not offering to complete in accordance with the Sale and Purchase Agreement as varied by the Variation Agreement because they were enclosing personal cheques. The letter therefore constituted an offer to complete on that day with personal cheques. The cheques were sent in order to complete that day.

56. I find the personal undertakings required by the Defendants' solicitors were conditional upon the Defendants accepting the enclosed cheques for completion. If they were not prepared to accept the cheques in order to complete that day then the legal position would remain the same between the parties as if the letter of 16th enclosing the personal cheques had not been sent.

57. The Defendants' solicitors not merely rejected the offer constituted by the letter, as they were entitled to, when they stated at 5:40 p.m. over the telephone that they were not prepared to accept the personal cheques for completion. They went further than that, however, when the following day they sent a letter purporting to rescind the Sale and Purchase Agreement and forfeit the Plaintiff's deposit based upon the enclosure on personal cheques in that letter. This they were not entitled to do.

58. I have reached the construction of the letter of 16th April enclosing the personal cheques, despite the fact that the Plaintiff's solicitors demonstrated that they temporarily had lost sight of the legal position regarding the production of the Letter of Modification. When following the telephone call from the Defendants' solicitors, they wrote a second letter to the Defendants' solicitors on 16th April which arrived at 6:25 p.m. and enclosed their firm's own cheques. The arguments put forward in that letter were clearly ill-founded, but the proper legal basis for their not having completed before 4.30 p.m. on 16th April was set out in their letter the following day.

59. By tendering their solicitors' firm's cheques at 6:25 p.m. on 16th April, the Plaintiff was offering to complete in accordance with the Sale and Purchase Agreement as varied by the Variation Agreement.

60. I accordingly find that there was no waiver of the Plaintiff's rights to receive a copy of the Letter of Modification Memorial No. 3750810 before completion or indeed to a 7 day period for completion thereafter, and that the Defendants' purported rescission of the Sale and Purchase Agreement as varied by Variation Agreement and forfeiture of the Plaintiff's deposit was wrongful.

61. Mr. Lau on behalf of the Defendants has conceded that the Plaintiff was at the material time and is now financially able to perform its obligations under the Sale and Purchase Agreement.

62. I accordingly make an order for specific performance in favour of the Plaintiff and dismiss the Defendants' counterclaim.

63. Unless the parties apply to be heard on the question of costs within 14 days of today, the Plaintiff's costs of and incidental to these proceedings to be taxed and paid by the Defendants.

64. There is liberty to apply.