WONG SHUI FONG v. CHAN YU LEUNG and Another

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 62
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This appeal concerns, in its particular context, the right of a purchaser to refuse to vacate the registration of a provisional sale and purchase agreement after the respondent vendors have made the appropriate payments for non-completion provided for in the relevant "escape" clause in the agreement.

2. The facts are these. On 27 March 1997 the appellant ("the 1st purchaser") entered into a proforma provisional Sale and Purchase Agreement ("the 1st Agreement") with the vendors to purchase their flat. It provided, inter alia, for the following matters: price: $3.5m; initial deposit $80,000; further deposit $270,000; formal agreement on or before 12 May 1997; completion on or before 25 September 1997. It also contained the following vendors escape clause, No. 8:

"8. Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance."

In addition, clause 10 provided that the defaulting party would pay all the estate agent's commission of $70,000.

3. Then, on 5 April 1997, the vendors entered into a provisional Sale and Purchase Agreement (the 2nd Agreement) to sell their flat to a second purchaser. The 2nd Agreement provided for the following matters: price $3.85m; initial deposit $200,000; further deposit $185,000; formal agreement on or before 21 April 1997, and completion 15 May 1997. There was an escape clause for the vendors similar to that in the 1st Agreement, and likewise, a clause that the defaulting party would pay the estate agent's commission and stamp duty.

4. Two days later, on 7 April 1997, the vendors informed the 1st purchaser of their intention to terminate the 1st Agreement and return the stamp duty and double the initial deposit. This was confirmed by the vendors' solicitors' letter of 10 April 1997.

5. On 15 April 1997, the 1st purchaser registered a memorial of the 1st Agreement in the Land Registry ("the registration") and on 16 April, through her solicitor, requested $230,000, i.e. double the initial deposit of $80,000 and $70,000 stamp duty.

6. On 19 and 21 April there were exchanges of correspondence between the solicitors about a cancellation agreement for payment by the respondent of $230,000 and further amounts, and the 1st purchaser signing the cancellation agreement to cancel the 1st Agreement. On 22 April the vendors paid the amounts, but the 1st purchaser's solicitors required certain amendments. On 24 April 1997, despite demands and threats of legal proceedings, the 1st purchaser refused to sign the cancellation agreement or to vacate the registration.

7. On 2 May 1997 the vendors took out an originating summons against the 1st purchaser for

"the following relief:

1. A Declaration that the 1st Provisional Agreement has been terminated and that the Plaintiffs have discharged all obligations in respect of the said agreement due to the Defendant thereunder.

2. An Order that the said Registration in the Land Registry be vacated.

3. Interest ...

4. Costs.

5. Further or any other relief."

8. On 15 May the 1st purchaser filed an acknowledgement of service contesting the vendors' application.

9. On 28 May 1997 Master Jennings made the following consent order:

"BY CONSENT, IT IS ORDERED AND DECLARED that:

1. The Provisional Agreement for Sale and Purchase dated 27th march 1997 and registered in the Land Registry by Memorial No. 7014851 has been terminated and that the Plaintiffs have discharged all obligations in respect of the said agreement due to the Defendant thereunder.

2. The said Registration in the Land Registry by Memorial No. 7014851 be vacated.

3. Costs of this action be to the Plaintiffs.

4. Damages to be assessed."

It should be noted that although the originating summons did not expressly seek damages, it did include in its claims, interest, costs, and further or other relief.

10. Master Jones heard the matter of assessment of damages on 27 January 1998. Only one witness was called by the vendors, their son, Mr Chan Man Fung, who adopted his typed statement as his evidence in chief. He stated inter alia in the circumstances the 2nd purchaser refused to complete and as a result the vendors suffered losses and damages; that payments totalling $263,500 had been made by the vendors to the 2nd purchaser comprising double deposit, $200,000; agency commission paid by the 2nd plaintiff, $38,500 and agency commission paid by the vendors under the 2nd Agreement $25,000. The 1st purchaser's counsel did not ask any questions nor call any evidence. On 10 February 1998 Master Jones gave final judgment in the sum of $263,500 against the 1st purchaser. In his judgment he said this:

"After entering into the second agreement the [vendors] sought to terminate the agreement with the [1st purchaser]. It is not disputed that they validly did so by paying to the [1st purchaser] the various sums stipulated in the first agreement to cover that eventuality. The damages claimed by the [vendors] are said to flow from the [1st purchaser's] failure thereafter to execute a cancellation agreement to vacate his (sic) registration of the first provisional agreement against the [vendors'] title. This apparently resulted in the 2nd purchaser's refusal to complete the second agreement, and the plaintiffs being obliged to compensate the 2nd purchaser when that agreement also had to be terminated.

...

At the hearing the parties agreed that the witness statement of Chan Man Fung, the [vendors'] son, should stand as evidence in chief for the [vendors]. [The vendors' solicitors] closed the [vendors'] case on that evidence, and Mr. Cheung declined both to cross-examine and to call evidence for the [1st purchaser]. Mr. Cheung then argued that despite the order for assessment, the [vendors] were not entitled to any damages. His submissions related both to law and to lack of evidence of causation. Alternatively Mr. Cheung contested the quantum in the event of an adverse finding on his primary submissions.

Mr. Cheung argued that the [1st purchaser] had no legal obligation, following termination of the first provisional agreement, either to enter into a cancellation agreement with the [vendors], or to vacate the registration of the first agreement. He contended that the [vendors] could have answered a requisition on the registration against their title by producing the correspondence leading to the agreed termination of the first agreement, as well as proof of the compensation paid to the [1st purchaser].

On that, Mr. Cheung argued, the [vendors] could have forced the second purchaser to complete. He conceded that he had no authority for this submission.

On the parties' agreeing to terminate the first provisional agreement, the [vendors] assumed the obligation to pay the stipulated sum in compensation. The [1st purchaser's] obligation was to withdraw from the agreement leaving the property freely disposable by the [vendors]. The property was not however freely disposable so long as the registration of the first provisional agreement represented an encumbrance on the title. I therefore find it a necessary incident of the termination agreement that the [1st purchaser] would vacate the registration of the first agreement as soon as reasonably possible. (emphasis supplied)

The execution of a cancellation agreement between the parties terminating, although advisable, would be merely precautionary provided that the intention and fulfilment of termination were well documented elsewhere. However there can be no alternative to vacating the registration, and a subsequent purchaser could not be forced to completion with anything less. I therefore disagree with Mr. Cheung's first submission and find that the [1st purchaser's] failure to vacate the registration was a breach of his (sic) obligations under the agreement to terminate the first provisional agreement. (emphasis supplied)

The second limb of Mr. Cheung's submission attacks the [vendors'] evidence as failing to disclose causation of the damages claimed. Mr. Cheung argues that there is no proof of efforts by the [vendors] to secure completion by the second purchaser, and no evidence as to why the [vendors] should have paid him compensation.

The second purchaser was entitled to refuse completion so long as the registration of the first agreement encumbered the [vendors'] title. Evidence of efforts by the [vendors] to secure completion by the second purchaser would therefore be otiose so long as there exists so fundamental a reason why the purchaser could anyway lawfully refuse."

The master then went on to accept Chan Man Fung's evidence stating that it had

"not been disputed, and in paragraphs 8 and 9, he draws the connection between the [1st purchaser's] failure to vacate the registration and the 2nd purchaser's refusal to complete. I accept that the second purchaser's refusal was a necessary consequence of the failure to vacate, and find that the [1st purchaser] should be liable to the [vendors] for consequent damages."

11. Mr Cheung's main submission on behalf of the 1st purchaser is essentially that the registration, and its non-vacation, were no obstacle to good title being shown, and that the 2nd purchaser should have required the vendors to show good title which they could have done by demonstrating compliance with clause 8, the escape clause, in the 1st Agreement. If the vendors effectively escaped the 1st Agreement through proper compliance with clause 8, i.e. making the payments there required, then their title ceased to be affected by the 1st Agreement. Upon that basis, the registration could be shown to be nebulous and not to reflect any real encumbrance on their title. There is clear authority that proper compliance with an escape clause of the clause 8 sort thus enables a vendor to escape a provisional Sale and Purchase Agreement, in practical terms with his title intact. See Wong Lai-fan v Lee Ha [1992]1 HKLR 1-5; Man Sun Finance (International) Corp v Lee Ming-ching Stephen [1993]1 HKC 113.

12. For his contention that the 2nd purchaser should, not withstanding the registration, have required the vendors to demonstrate their title, Mr Cheung relies upon what he claims to be the more recent approach of the courts as revealed for instance in Castle City Limited v Choi Yue Development Limited, 1995 MP No. 1147 unreported, a decision of Keith J. There the question was whether two mortgages of some age which must have been discharged were yet a blot on the vendors' title. Keith J observed that:

"Solicitors advising purchasers are required to give proper advice as to the title of the property which their clients are buying. If they identify a possible defect in the vendor's title, they must advise whether the supposed defect is a real concern, or whether it is so theoretical that the chances of it ever been treated as a defect in the vendor's title are so remote that they can be discounted for all practical purposes. This is not the first vendor and purchaser summons in which I have concluded that the supposed blot on the vendor's title was so theoretical as not to amount to a defect in the title at all. My experience tells me that some solicitors advising purchasers may be tempted to treat the procedure laid down in section 12 of the Conveyancing and Property Ordinance (Cap 219) as a means of protecting themselves at their clients' expense. I suspect that instead of giving their clients their professional opinion on how likely it is that the defect will not be regarded as a blot on the vendor's title, some solicitors advising purchasers may have taken the easy route of advising their clients to obtain a definitive ruling from the Court. That would not be a legitimate approach. As Godfrey JA once wrote: '... it is not and should not be the duty of a conveyancing practitioner to take every conceivable point ... in order to protect his own rear'.(The New Gazette, March 1994 p. 31)"

However valid that approach may be in ordinary cases, it does not seem to me that it can be accepted as applying to the circumstances here. The 2nd purchaser was at the material time refusing to sign the cancellation agreement, and also to vacate the registration. Moreover, through her solicitors, she was even forcefully disputing the need and their right to a cancellation agreement. I cannot think that an average prudent solicitor would be disposed to advise that the subsisting registration was not of real concern or that it was so theoretical that the chances of it ever been treated as a defect in the vendors' title are so remote that they can be discounted for all practical purposes. The assembling and checking of the proof that all the requirements of the escape clause had been met, would alone probably be of real concern. It is even more difficult to see that an ordinary purchaser would be prepared to proceed with a purchase if apprised of the 1st purchaser's stance in the foregoing respects and the necessity to go to court to vacate the registration. I therefore reject Mr Cheung's submissions that the registration was not an obstacle to showing good title in the particular circumstances. It is relevant to that conclusion that Mr Cheung did not dispute that an order of the court or the consent of the 1st purchaser would be required to have the registration vacated. That, as will be seen, is sufficient to dispose of the appeal.

13. However, I pause here to touch upon another of Mr Cheung's points. Having regard to Master Jones's judgment, it might be thought that Mr Cheung's foregoing points are of little concern, for it is apparent that Master Jones relied not upon the 1st Agreement, but rather on an agreement made by the parties to terminate the 1st Agreement. That is plain from his following words that were emphasised in the passages from his judgment that I have already quoted:

"I therefore find it a necessary incident of the termination agreement that the defendant would vacate the registration of the first agreement as soon as reasonably possible."

And a little later,

"I therefore disagree with Mr. Cheung's first submission and find that the [1st purchaser's] failure to vacate the registration was a breach of his (sic) obligations under the agreement to terminate the first provisional agreement."

Indeed, had he been entitled to make those findings, they would have nullified Mr Cheung's foregoing submission. However, Mr Cheung contends that there was no evidence that the cancellation agreement or the termination agreement as Master Jones referred to it, was ever concluded. On the contrary, he submits, the documentary evidence clearly shows that no such agreement was reached. Having referred to the letters exchanged between the solicitors, it seems to me that this submission cannot be rejected.

14. In fairness to Master Jones, it has to be said that he found himself in an unusually difficult position. The sort of factual disputes that have emerged, and the developments in the proceedings demonstrate that they ought not to have been dealt with by way of originating summons. The main relief sought, i.e. damages, was not even specified, but brought in as any "other relief". The particularly complicating factor was the consent judgment. In particular, upon what basis the 1st purchaser was consenting, and even as to what she was consulting to, is far from clear.

15. Reverting then to Mr Cheung's primary point, although he stopped short of actually challenging the consent judgment, understandably given that it was made upon the joint invitation of the 1st purchaser's solicitor and the vendors' solicitor, his submissions were plainly incompatible with the consent order, in particular regard to that part of it that required damages to be assessed. He did not ask for the consent order to be set aside; it is in any case difficult to see how it could now be set aside. The order that damages be assessed must, therefore, be given effect. The only possible liability underlying that part of the order which could attract damages in the circumstances, a fortiori given that the order required the registration to be vacated, must be for the refusal or delay in removing the registration. Therefore, the damages that have to be assessed clearly had to be for refusal or delay in vacating the registration. Once that position is reached, I have to say that I cannot see how the damages to be assessed could not include the double deposit paid by the vendors to the 2nd purchaser, and the agency fees they paid to the 2nd purchaser and which they themselves have paid to the agency as commission.

16. Mr Cheung also submitted that there was no evidence or credible evidence that the vendors attempted to show the 2nd purchaser good title, or that they had paid the double deposit and agency fees awarded by Master Jones. However, these matters were sufficiently dealt with in Chan Man Fung's evidence. Mr Cheung, for the 1st purchaser, elected not to challenge that evidence and cannot now be permitted to do so.

17. For the reasons I have given, I would dismiss the appeal. I think it desirable to add that those reasons are concerned more with the unusual circumstances of this case rather than the inherent nature of escape or cancellation clauses or refusal to vacate entries in the land register.

18. As to costs, I think purchasers disgruntled by vendors using escape clauses that the purchasers in the first place have themselves agreed to, should be discouraged from causing the courts to be vexed with the results of their retaliation against the vendors. That should be achieved by the award of damages that I would uphold. Likewise, there is nothing edifying in vendors, having entered into agreements for sale, immediately resorting to an escape clause to grasp a higher price. The court's time, heavily subsidised by the taxpayer, can be better devoted to the expeditious hearing of other more meritorious claims. I would made an order nisi that the vendors are to have two-thirds of their costs of the appeal.

Mortimer, V.-P.:

19. The 1st purchaser registered the 1st Agreement in the Land Registry. Thereafter the vendors avoided the Agreement under the provisions of clause 8 and paid the necessary refund and liquidated damages.

20. The registration of the 1st Agreement remained in place and the vendors and the 1st purchaser failed to reach a "cancellation agreement" of the 1st Agreement.

21. The vendors took the only appropriate action open to them by issuing an originating summons on 2 May 1997 for a declaration that the 1st Agreement was at an end, for an order to vacate the registration, and for ancillary matters including "further or other relief".

22. The 1st purchaser had not the scintilla of a defence to this application but she did not concede. On 15 May 1997 she filed an acknowledgement of service resisting the summons.

23. Before avoiding the 1st Agreement, the vendors had sold to a second purchaser. At the time for completion of the 2nd Agreement, the 1st purchaser was still contesting the vendors' right to the declaration and to an order to vacate the registration. The consequence was that the 2nd purchaser refused to complete because the continued registration of the 1st Agreement was a "blot" on the title.

24. Against this background on 28 May 1997 the vendors wanted damages under "further or other relief" and the 1st purchaser consented to Master Jennings making an order for the relief claimed in the originating summons and also for damages to be assessed.

25. Thereafter the 1st purchaser made no application to set this consent order aside. When Master Jones came to assess the damages on 27 June 1997 in pursuance of the consent order he assessed the damages which flowed from the 1st purchaser's earlier refusal to consent in a timely manner to the vacation of the registration.

26. An examination of the possible legal basis for this assessment of damages is nothing to the point. It is assumed by, and based upon, the consent order. This appeal, therefore, turns upon its own very special facts and it is undesirable to speculate what legal basis there may or may not have been for the award of damages in the absence of the consent order.

27. For these reasons I agree that this appeal must be dismissed.

28. I also agree with the order nisi for costs proposed by Nazareth V-P.

Liu, J.A.:

29. I adopt the facts set out in the judgment of my Lord, the Vice-President.

30. Shortly put: the owners sold their property twice. The second sale was at a price more than that of the first. The owners managed to lawfully terminate the first sale which had been, prior to such termination, duly registered in the Land Office by a memorial. In Hong Kong, we do not run a system for registration of title. Our system is one for registration of documents affecting land, but that is not to say that a registration entered in the Land Office will not be a blot on the title. By section 3 of the Land Registration Ordinance, all registered deeds, conveyances and other instruments in writing and judgments affecting land "shall have priority one over the other according to the priority of their respective dates of registration". The like documents, if they are not registered, "shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration ........., be absolutely null and void to all intents and purposes". In this appeal, suffice it to say that the registration of the first sale ranked, in priority, over the second sale.

31. After the cancellation of the first sale, a great many demands were made of the first purchaser by the owners, including vacation of the memorial of the first sale as registered in the Land Office. These demands of the owners were partly resisted on various grounds and were not met in full. To put it in neutral terms, there was no co-operation on the part of the first purchaser to vacate the registered memorial of the first sale in the Land Office. Therefore, the registration of the first sale, though cancelled, stayed in the Land Office record.

32. But for the registration of the first sale, the purchaser in the second sale would have completed. The second sale had to be finally aborted, resulting in compensation having to be paid by the owners for the various sums incurred in the second sale and its cancellation.

33. By an originating summons dated 2 May 1997, the owners took the first purchaser to Master Jennings before whom the following order was made by consent:

"1. The Provisional Agreement for Sale and Purchase dated 27th March 1997 and registered in the Land Registry by Memorial No. 7014851 has been terminated and that the Plaintiffs have discharged all obligations in respect of the said agreement due to the Defendant thereunder.

2. The said Registration in the Land Registry by Memorial No. 7014851 be vacated.

3. Costs of this action be to the Plaintiffs.

4. Damages to be assessed."

34. Nothing which arose from the period of discord between the owners and the first purchaser was registrable in the form of a memorial against the property to lift the priority of the first agreement. Far be it from the first purchaser to lend support to the owners' attempted vacation of the memorial of the first sale, the originating summons was sought to be contested and it was only at the hearing before Master Jennings that she consented to the above order to be made. It is reasonably clear from Master Jennings' consent order that the first purchaser acknowledged her refusal to vacate the memorial of the first sale as wrongful, for which costs were agreed to be paid and damages assessed. No juridical objection was raised during the session before Master Jones for the assessment of damages.

35. All seven Grounds of Appeal relate to matters which arose from the first sale before the parties attended on Master Jennings. Those matters were overtaken by the consent order. No complaint is made in the Grounds of Appeal about quantum. Nothing advanced by counsel for the first purchaser/appellant impinges upon the juridical basis upon which the owners claim loss and damage. This appeal is wholly misconceived, but for the unusual circumstances in this case I would not be prepared to dissent from the order nisi for costs proposed by the Vice-President.

Nazareth, V.-P.:

36. The appeal is accordingly dismissed with an order nisi that the respondents are to have two-thirds of their costs of the appeal.