WONG CHAU WAN v. KWOK SAU KING

DCCJ 4557/ 2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4557 of 2010

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BETWEEN

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JUDGMENT

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Background

1.  The Defendant seeks to enter Judgment against the Plaintiff pursuant to Order 14 rule 5 and Order 86 rule 8.

2.  On the 19 September 2010, the parties in this action entered into a provisional sale and purchase agreement for a property in Kowloon (“the Provisional Agreement”). The Plaintiff purchaser knew the Defendant was selling as confirmor by reason of Clause 6 which provided for the following:-

“The Vendor is selling as Confirmor and this Agreement is subject to the terms and conditions of the principal agreement made between the Vendor and Head Vendor.”

3.  Clause 2 provided that the formal sale and purchase agreement shall be signed on or before 3 November 2010 and also a further deposit of $305,000 shall be paid on the same day in addition to the sum of $150,000 already paid on the date of signing the Provisional Agreement.  Completion was to take place on or before noon on the 18 March 2011.

4.  The head vendor’s solicitors sent an engrossment of the formal head agreement to the Defendant’s solicitors on 18 October 2010.  The Defendant’s solicitors signed and returned the formal head agreement on 22 October 2010 and requested the head vendor to sign and return a counterpart within 3 working days. However, the head vendor’s solicitors did not return the counterpart until 22 November 2010.

5.  In the meantime, the Plaintiff’s solicitors by a letter dated 20 October 2010, requested a “draft Agreement for Sale and Purchase for our approval together with all the title deeds and documents of the captioned premises for our approval”.  The Plaintiff’s solicitors did not specifically ask for a copy of the provisional sales and purchase agreement between the Defendant and the head vendor who was Goldentree Industrial Limited (“Head Provisional S&P”) although they did ask for all title deeds and documents of the property. 

6.  On 1 November 2010, the Defendant’s solicitors, under cover of a letter, sent a draft Agreement for Sale and Purchase for the approval of the Plaintiff’s solicitors.  The letter stated the following:-

“If you find our draft Agreement agreeable, please so inform us so that we shall engross and send you the said Agreement (in duplicate) for your client’s execution. Thereafter, please return the same to us together with your cheque/cashier order drawn in favour for the sum of HK$305,000 being further deposit payable by your client on or before 3 November 2010.”

7.  On 3 November 2010, the Plaintiff’s solicitors sent a cheque under cover of a letter as further deposit pursuant to clause 2 of the Provisional Agreement. Neither did the Plaintiff’s solicitors indicate they were not agreeable to the draft nor did they ask for further title deeds and documents, in particular, the Head Provisional S&P.

8.  It was only on 22 November 2011, the head vendor’s solicitors sent a counterpart of the head formal agreement to the Defendant’s solicitors.  On the same day, the Plaintiff’s solicitors sent a letter to the Defendant’s solicitors alleging that the Defendant had failed to supply a signed copy of the head formal sale and purchase agreement before the due date of signing the formal sub-sale and purchase agreement (3 November 2010).  The letter stated that the Defendant was in breach and had repudiated the Provisional Agreement which was accepted by the Plaintiff.  The Plaintiff demanded the return of the deposit.  The material part of the said letter is reproduced hereunder:-

“On 1 November 2010, your client sent the draft Agreement and enclosed a copy of the draft head agreement between the registered owner and our client.

Nothing about the head agreement has been heard from your client since the said letter despite the lapse of the due date for the signing of the formal agreement for sale and purchase i.e. 3 November 2010. Without the head agreement, your draft formal agreement as between our respective clients cannot be approved.” (Underlining added)

9.  The said letter did not say that Defendant was in breach by failing to supply a copy of the Head Provisional S&P.  The words “our client” that were underlined in the quotation should be “your client” instead.  It is obvious that it was a mistake. 

10.  On the 23 November 2010, the Defendant’s solicitors sent a letter to the Plaintiff’s solicitors enclosing a signed certified copy of the head sale and purchase agreement.  It was denied that the Defendant was in material breach of the Provisional Agreement entitling the Plaintiff to rescind. 

11.  The Plaintiff commenced these proceedings against the Defendant in December 2010 seeking the return of the deposit paid and registered the Writ of Summons against the property.  The Defendant filed a Defence and Counterclaim claiming that the Plaintiff had wrongfully repudiated the Provisional Agreement and sought to forfeit the deposit paid and damages.

12.  Mr. Yip (counsel for the Plaintiff), in the course of his submissions, argued that there is triable issue as to whether the Head Provisional S&P was disclosed to the Plaintiff.  It is the Plaintiff’s case on the present application that the Defendant never showed the Head Provisional S&P to the Plaintiff.  Mr. Yip argued by reason of the “non-disclosure” of the Head Provisional S&P and Clause 6, there is an implied term that the Defendant must disclose to the Plaintiff the head agreements, be they provisional or formal, to the Plaintiff on or before the 3 November 2010, time being of the essence.  Mr. Yip has cited no authorities in support of his broad proposition.

Was the Provisional Agreement disclosed?

13.  In paragraph 4 of the Reply and Defence to Counterclaim, the Plaintiff explicitly denied that a true copy of the Head Provisional S&P was provided to the Plaintiff on or before 3 November 2010.  In paragraph 3 of the Plaintiff’s affirmation, she verified and confirmed that the matters pleaded in her Statement of Claim and Reply and Defence to Counterclaim are true. 

14.  Mr. Pun (counsel for the Defendant) made the following points:-

1)   The estate agent acting for the parties and Goldentree Industrial Limited had stated in paragraph 6 of his affirmation that he had provided a copy of the Head Provisional S&P on 19 September 2010 to the Plaintiff.  The Plaintiff did not directly respond to this evidence.  In short, I think Mr. Pun’s point was it was not expressly denied in the evidence of the Plaintiff.

2)   The Plaintiff’s solicitors had not at any time asked for a copy of the Head Provisional S&P in the correspondence.  No such request was ever made to the estate agent. 

3)    In the letter of the Plaintiff’s solicitors dated 1 December 2010, written in response to the letter from the Defendant’s solicitors of 23 November 2010, the Plaintiff’s solicitors were only referring to the head formal sale and purchase agreement. No mention was made of the Head Provisional S&P.

4)   The Plaintiff knew she was buying the property from the Defendant who was acting as a confirmor and she was experienced enough to have noticed that the Defendant’s name did not appear on the land search record (paragraph 6 of her affirmation) when she signed the Provisional Agreement.  It is simply incredible for the Plaintiff not to ask to see the Head Provisional S&P or a copy thereof.

15.  In support of his contention, Mr. Pun relies on the cases of Murjani v. Bank of India [1990] 1 HKLR 586 (CA) at 589, 590 & 597 and Banque de Paris v. Costa de Naray [1984] 1 Lloyd’s Rep 21 (CA) at 23.

16.  Courts are always reluctant to come to any factual finding when there is a genuine factual dispute on affidavit/affirmation evidence.  However, what Laddie J. said in Microsoft Corporation v Electro-Wide Limited [1997] FSR 580 at 593-4 is pertinent:-

“So here the court has to ask whether there is a fair or reasonable probability of the defendants having a real or bona fide defence in relation to these issues. In answering that question it is not sufficient just to look at each factual issue one by one and to consider whether it is possible that the defendant’s story in relation to that issue is credible. The court must look at the complete account of events put forward by both and the plaintiff and the defendants and, to use Ackner L.J.’s words, look at the whole situation. The mere fact that the defendants support their defence by sworn evidence does not mean that the court is obliged to suspend its critical faculties and accept evidence as it was probably accurate. If, having regard to inconsistency with contemporaneous documents, inherent implausibility and other compelling evidence, the defence is not credible, the court must say so.” (Underlining added)

17.  I find it difficult to accept the Plaintiff’s bare denial when she did not expressly deal with the evidence of the estate agent.  The Plaintiff knew it was a sale by confirmor.  She said the following in her evidence:-

“The name of the Defendant was not shown on the land search record provided to me by Flourish Property Agency when I was at the office of Flourish Property Agency to sign the Provisional Agreement. Whether the Defendant had any title to sell the Premises (sic) and receive any deposit from me concerned me.”

18.  Despite her concern, I find it quite implausible that she neither asked for a copy of the Head Provisional S&P nor did her solicitors do so.  She also said in paragraph 7 of her affirmation that when a land search was conducted on 20 October 201 by her solicitors which was 1 month after signing the Provisional Agreement, there was nothing to show that the Defendant was registered as an intended purchase of the property.  She must have been seriously concerned by now and yet the letter of 20 October 2010 from her solicitors referred to in paragraph 5 above did not specifically ask for a copy of the Head Provisional S&P.

19.  Notwithstanding her concern, she paid the second deposit of HK$305,000 under cover of a letter dated 3 November 2010.  The said letter did not address the Plaintiff’s alleged concern at all.

20.  It has not been suggested by Mr. Yip that there is anything to be gained by the estate agent making an affirmation for the Defendant.  The estate agent is still entitled to his fees by reason of clause 11 of the Provisional Agreement if the parties fail to carry out the transaction. 

21.  It was only on the 22November 2010, more than 2 weeks after the due date of signing the formal sale and purchase (which Mr. Yip submitted that time was of the essence) that the Plaintiff’s solicitors alleged the Defendant was in breach of the Provisional Agreement.  The reason for the breach set out in the correspondence herein (see paragraphs 8 and 14(3)) was always limited to the failure to supply the signed head formal agreement and not the Head Provisional S&P.  If the Plaintiff was genuinely concerned (for the reasons she had given), the point regarding the Provisional Agreement would have been raised by her solicitors at the earliest possible moment and clearly stated in the 2 letters.

22.  I have looked at the whole situation, the complete account put forward by the parties and the contemporaneous documents. I find it incredible that the Provisional Agreement was not shown or a copy thereof provided to the Plaintiff as alleged by her.  In light of my finding, Mr. Yip’s argument must fail and judgment entered against the Plaintiff.  However, even if I am wrong on this aspect, the Plaintiff had not shown a triable issue in law.

Is there a triable issue in law?

23.  Mr. Yip submitted in paragraph 6(c) of his Skeleton Submission that the contention for the implied terms as pleaded was based on the understanding between the parties that the Defendant must prove to the Plaintiff before signing the formal sale and purchase agreement the Defendant’s title to sell the property. He refers to paragraph 8 of the Plaintiff’s evidence:

“The Defendant must prove satisfactorily to me that the Defendant was having the requisite title to sell or convey the Premises before the signing of the formal sale and purchase agreement. That was the understanding between the parties before the said Provisional Agreement was signed, and accordingly, it was part of the implied terms of the Provisional Agreement.”

24.  Similar declarations of opinion can also be found in paragraph 11 of the Plaintiff’s evidence:-

“Since that the Defendant must prove satisfactorily to me that the Defendant did have the title to sell or to convey the Premises before the Formal Agreement was signed…”

25.  Mr. Yip submitted “the Plaintiff never sought to say the Defendant must show good title before signing the Formal Sub S&P.”  He also submitted that the implied terms pleaded are necessary to give business efficacy to the contract and it is reasonable to be implied in the circumstances.

26.  The argument that the Defendant must show she had title to sell at the time of signing the formal sub-sale and purchase agreement is different from showing good title is a distinction without a difference.  The law on this area is very clear and not disputed by Mr. Yip. 

27.  Mr. Pun had very clearly set out the relevant law.  “A provisional agreement is immediately binding on the parties.  Although it provides for a formal sale and purchase agreement to be signed, such a formal agreement would only be to incorporate the express terms of the provisional agreement, to express any implied terms, and to add any new terms that may subsequently be agreed…” per Yuen JA in See To Keung v. Sunny Way Ltd. [2009] 5 HKLRD 300 (CA) at 303. See Man Sun Finance (International) Corp v Lee Ming Ching Stephen [1993] 1 HKC 113 at 124D-F.

28.  Mr. Yip has not sought to argue that the Provisional Agreement was not immediately binding on the parties (although it was so pleaded).  That being the case, “in the absence of any special provision in the contract…the vendor is only obliged to show that he has a good title to pass on to the purchaser on completion…” and “he would have to show a good title and answer the requisition within a reasonable time before completion” per Wong JA in Chow Yim Woon v Lam Yung Ming [2003] 3 HKLRD 373 (CA) at 376G-I.

29.  Put at its highest, showing title to sell is merely a sub-set of showing good title.  I cannot see how it can command more importance than showing good title thus, different considerations should apply. 

30.  Since the Provisional Agreement is an immediately binding agreement and the Defendant is only required to show good title a reasonable time before completion which was on 18 March 2011, the terms sought to be implied are, accordingly, unreasonable.  Terms are not implied into a contract unless it is in all the circumstances reasonable to do so: Liverpool City Council v. Irwin [1977] AC 239 (HL) at 262B-D.

31.  I should at this juncture deal with the argument that “time was of the essence” in showing title to sell on 3 November 2010.  Mr. Yip has conflated the issues of whether time was of the essence of a particular term which has been broken and whether time was of the essence of the contract as a whole.  Even for the sake of argument that time was of the essence in showing title to sell by 3 November 2010 (which I disagree). It is only a particular term that has been broken and not the contract as a whole.  The Defendant’s alleged failure did not go to the root of the contract: Chitty on Contracts (30^th ed) Vol 1, 24-040.  In short, it was not a repudiatory breach of the Provisional Agreement.

32.  Finally, Mr. Yip submitted that the Defendant had not taken steps to mitigate her loss. There is no evidence before me to show that the subsequent resale of the property by the Defendant was not a transaction conducted at arm’s length nor at fair market value.  This point fails.

33.  In the premises, the Plaintiff wrongfully repudiated the Provisional Agreement which was accepted by the Defendant.  By reason of my decision this entire action is disposed of and I make an Order in terms of paragraphs 1 to 4 of the Defendant’s Summons dated 20 April 2011.  For the avoidance of doubt, the costs to be paid by the Plaintiff referred to in paragraph 4 of the said Summons include the costs of the Defendant defending the Plaintiff’s claim and the Defendant’s costs in the Counterclaim, to be taxed if not agreed.  Certificate for counsel is granted for the hearing on 18 July 2011.