XCHRX JOYOCEAN DEVELOPMENT LTD. v. LAM TAT CHEONG AND OTHERS

HCA1281/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1281 OF 1998

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REASONS FOR DECISION

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COURT: This is an appeal by the plaintiff against the order of Mr Registrar Betts, as he then was, made on 9 September 1998, dismissing the plaintiff's application to strike out paragraphs 18 and 20(d) of the defence and for the determination of certain questions of law between the plaintiff and the 3rd defendant.

1. The plaintiff was the purchaser of the premises known as Flat C on the 16th Floor of Block 5 in Whampoa Garden, "the said property", under a sale and purchase agreement dated 29 August 1997. The 1st and the 2nd defendant were the vendor of the said property and the 3rd defendant was the solicitor acting on behalf of the 1st and 2nd defendant in relation to the said sale and purchase agreement. The price for the said property was 4.28 million and, up to the end of August 1997, the plaintiff had paid the deposit and part payment in the total sum of $428,000. Completion was to take place on or before 31 October 1997.

2. Under clause 33 and Part I of Schedule 3 of the sale and purchase agreement in question, the 3rd defendant received the initial deposit of $100,000 as stakeholder and the further deposit of $328,000 also as stakeholder. And, insofar as the further deposit of $328,000 was concerned, the 3rd defendant shall hold the said sum as stakeholder until, (1) the vendor - that is, the 1st and 2nd defendant - shall prove a good title to the property; and (2) the 1st and 2nd defendants had successfully sought a Declaration by the court that the vendor is entitled to (a) terminate the agreement of sale and purchase dated 21 March 1997.

MR CHAIN: It should be December, my Lord.

COURT: December, I'm sorry. Entered between the vendor as vendor and one MAN Tak-wing and CHEUNG Hon-mei as purchaser and registered in the Land Registry by memorial no. 6896252; then, (b) forfeit the deposit paid thereunder by the said MAN Tak-wing and CHEUNG Hon-mei; and (c) sell the property to a third party.

3. Apparently, the 1st and 2nd defendant had, by an earlier agreement, sold the said property to MAN Tak-wing and CHEUNG Hon-mei - and they will be referred to as the first purchaser - and it was expected that the first purchaser would not go through with the transaction and, hence, the 1st and 2nd defendant would be able to complete the transaction in question with the plaintiff. In September 1997, the plaintiff's then solicitor requested a copy of the Declaration stipulated under clause 33 of the sale and purchase agreement. That particular Declaration was not supplied by the 3rd defendant but the 3rd defendant, on behalf of the 1st and 2nd defendant indicated that a memorandum of rescission signed by the 1st and the 2nd defendant would be adequate.

4. The plaintiff, through its then solicitor, did not agree with the 3rd defendant's suggestion and, in the course of the correspondence between each other, the plaintiff also requested for a copy of the Originating Summons in High Court Miscellaneous Proceedings 2690 of 1997, issued by one Industrial and Commercial International Capital Limited against the 1st and the 2nd defendant. The said Originating Summons had been registered in the Land Office and it had just come to the plaintiff's knowledge shortly before the original completion date on 29 October 1997. There was no response to this request by the plaintiff's solicitor.

5. The 3rd defendant took the view that, by registering a memorandum of rescission, the interest created by the sale of the property to the first purchaser would be discharged and hence good title to the said property had been proved. In its defence, the 3rd defendant also pointed out that the Originating Summons issued by this Industrial and Commercial International Capital Limited was a mortgagee action. The mortgage would be discharged upon completion and, hence, it would not affect the title of the said property on completion.

6. It is the plaintiff's contention that the 1st and the 2nd defendant were in breach of the sale and purchase agreement by failig to obtain the Declaration and/or prove a good title.

7. The 1st and the 2nd defendant, on the other hand, contend that it was the plaintiff who had failed to complete the transaction in time and, by a letter dated 4 November 1997 from the 3rd defendant, they purport to forfeit the deposit paid by the plaintiff. It was the plaintiff's case against the 3rd defendant that the 3rd defendant itself was in breach of its duty as the stakeholder in releasing the deposit of $428,000 to the 1st and 2nd defendant when the required Declaration had not been obtained and good title had not been proved before the completion date.

8. On the other hand, the 3rd defendant contended that the 1st and the 2nd defendant had satisfactorily answered the plaintiff's requisition and condition (1) and (3) of clause 33 of the sale and purchase agreement had been fulfilled. The 3rd defendant further contended that the obtaining of the Declaration was not a condition precedent for the completion to take place. The 3rd defendant suggested that, as the plaintiff was in breach of the sale and purchase agreement, the 1st and 2nd defendant were entitled to forfeit the deposit and the 3rd defendant was, therefore, entitled to release the deposit to the 1st and 2nd defendant.

9. Alternatively, so the 3rd defendant argued, if the 1st and the 2nd defendant were in breach of the agreement, the repudiation had not been accepted by the plaintiff and the agreement still subsisted after 4 November 1997, as the plaintiff only accepted the repudidation much later, in around the middle of January 1998.

10. The 3rd defendant contended, by 8 January 1998, all stakeholding conditions had been completely fulfilled and the 3rd defendant was, therefore, entitled to release the deposit to the 1st and 2nd defendant on 15 January 1998. Apparently, the Declaration stipulated under clause 33 of the original sale and purchase agreement was only obtained on 8 January 1998, although a consent order to that effect had been signed by the 1st and the 2nd defendant and the first purchaser much earlier than that.

11. The other matter raised by the 3rd defendant in their original defence related to a letter sent to the plaintiff on 22 November 1997. In that letter, the 3rd defendant informed the plaintiff that the first purchaser and the 1st and 2nd defendant had executed a consent summons for the granting of the Declaration and the plaintiff was asked to complete the transaction. The 3rd defendant also put the plaintiff on notice that, should the plaintiff fail to respond to this offer on or before 24 November 1997, the deposit would then be released to the 1st and 2nd defendant.

12. There is no dispute that the plaintiff failed to respond to this letter as such and the 3rd defendant contended that the plaintiff's conduct constitutes some form of acquiescence and the plaintiff was estopped from complaining against the release of the deposit to the 1st and 2nd defendant. These are the matters raised by the 3rd defendant in their original defence.

13. The letter dated 22 November 1997 was, in fact, a "Without Prejudice" letter which prompted the plaintiff in suggesting that the letter was privileged which privilege the plaintiff had not waived. I have some reservation about the suggestion that the plaintiff are entitled to claim any privilege over the content of this letter dated 22 November 1997, a letter written by the 3rd defendant. But I do not consider this aspect to be important at all. Mr CHAIN, in any event, is no longer relying on this particular aspect and I shall say no more about it.

14. If the contract in question had been terminated on 31 October 1997, when the 1st and the 2nd defendant had failed to show the good title, it is, in my view, not open to the 3rd defendant to revive the contract on 22 November 1997 and suggest that they would then release the deposit to the 1st and 2nd defendant should the plaintiff fail to respond on or before 24 November 1997. This is particularly so when the sale and purchase agreement in question clearly stipulates that the 3rd defendant should hold the deposit as stakeholder until the Declaration had been successfully sought; and there is no dispute that such Declaration had not been obtained by 24 November 1997.

15. On the undisputed facts before me, I have no difficulty in concluding that the 1st and 2nd defendant were initially in breach of the sale and purchase agreement by failing to obtain the Declaration and/or to answer the requisition regarding the High Court Miscellaneous Proceeding 2690 of 1997. Clause 33 of the sale and purchase agreement clearly stipulated that the deposit of $328,000 should be held by the 3rd defendant as stakeholder until the vendor prove a good title and until the vendor obtain the Declaration by the court.

16. On this aspect, I accept Mr CHAIN's submission that, to give business efficacy to the agreement in question, the Declaration had to be obtained and good title must be shown or proved before the completion scheduled to take place on 31 October 1997. The 1st and 2nd defendant might well have a satisfactory answer to the requisition raised by the plaintiff regarding High Court Miscellaneous Proceeding 2690 of 1997. The fact remains such requisition had been completely ignored and no adequate or satisfactory response had been given to such requisition.

17. The 3rd defendant contend that, despite the repudiation by the 1st and 2nd defendant, the plaintiff had not accept the repudiation before 15 January 1998. The plaintiff's solicitor had, as early as 7 November 1997, returned the title deed to the 3rd defendant pursuant to a request made, firstly, on 4 November 1997 and then repeated two days later on 6 November 1997, with a threat that failing to return such title deed by the plaintiff's solicitor may result in the matter being referred to the Law Society.

18. I must, of course, not ignore the undisputed fact that, on 22 November 1997, the 3rd defendant had already indicated that, as the plaintiff was in repudiation, the deposit would be forfeited. And then, on 27 November 1997, the plaintiff's then solicitor asked the 3rd defendant if they had instructions to accept service on behalf of the 1st and 2nd defendant. All this indicates ...

MR CHAIN: No, I'm afraid 27 November is the other way around.

COURT: 27th.

MR CHAIN: The 1st defendant asked us whether we have instructions.

COURT: That's right. 27 November. I'm sorry.

COURT: The 3rd defendant asked the then solicitor for the plaintiff if they have instructions to accept service on behalf of the plaintiff. All this clearly, in my view, indicates not only that the plaintiff had treated the contract as having come to an end, so did the 1st, the 2nd and the 3rd defendant. I am satisfied that the undisputed evidence had clearly demonstrated that the parties to this transaction, including the 3rd defendant themselves had treated the contract as an at an end by the end of November 1997. It is, in my view, not open to the defendants to revive the contract thereafter.

19. I am satisfied that it is completely unarguable for the 3rd defendant to suggest that the contract in question still subsisted as late as 15 January 1998 and that they were, therefore, entitled to release the deposit to the 1st and the 2nd defendant on that day in accordance with the sale and purchase agreement. It appears that, subsequent to determination of the sale and purchase agreement in question, the 3rd defendant still tried to procure the Declaration in question and that was done, as Mr CHAIN pointed out, with a view to justify the releasing of the deposit to the 1st and the 2nd defendant.

20. I have considered the other matter raised by Mr CHEUNG, on behalf of the 3rd defendant - the matter that was not originally raised in their defence but a matter that the 3rd defendant now wish to raise by way of the proposed amended defence. That particular defence relates to the alleged election on the part of the plaintiff. The suggestion was that, as the plaintiff had elected to bring proceedings against the 1st and the 2nd defendant for the return of the deposit of $428,000 and that, in respect of that deposit, the plaintiff also tried to obtain a lien against the property in question.

21. I am of the view that there is completely no base for the 3rd defendant to suggest that the plaintiff had abandoned the claim against the 3rd defendant. As I have observed in the course of counsel's argument, the liability of the 3rd defendant towards the plaintiff is one of a stakeholder and not as an agent of the 1st and 2nd defendant. The obligation as a stakeholder is an independent obligation under the contract in question which the 3rd defendant also signed.

22. Under the agreement in question and as the stakeholder, the 3rd defendant had an independent obligation towards the plaintiff not to release the deposit to the 1st and 2nd defendant unless they were so entitled in accordance with sale and purchase agreement and the conditions thereunder for payment were satisfied. When the 3rd defendant released the deposits which were also a part payment of the purchase price to the 1st and the 2nd defendant on 15 January 1998, the contract had already been brought to an end by the repudiation on the part of the 1st and the 2nd defendant. That being the case, the 1st and the 2nd defendant were no longer entitled to be paid the deposits and part payment.

23. In my view, the 3rd defendant, as the stakeholder, had incorrectly and wrongly paid out the stake money to the 1st and the 2nd defendant. The 3rd defendant appeared to be very eager to do it and they did it at their own risk. The plaintiffs are entitled to recover such payment from the 3rd defendant on an action in contract or for money had and received.

24. I have considered the undisputed facts of this case and I have also considered counsel's submissions and argument carefully. I am satisfied that, despite the stringent requirement under Order 14A, the matter before me can and should be disposed of summarily. And, having considered the undisputed facts of the case and counsel's argument, I am satisfied that the issues raised should be decided in favour of the plaintiff against the 3rd defendant.

25. That being the case, I have to allow the appeal and to give judgment for the plaintiff against the 3rd defendant in the sum of $428,000 and interest thereon at the rate of ten per cent per annum from the date of the writ, which is 16 January 1998.

MR CHAIN: My Lord, the date of the writ is, in fact, 24th.

COURT: 24 January. All right, 24 January 1998 then.

MR CHEUNG: My Lord, should it be from the date when the 3rd defendant was joined as a party?

COURT: No, I think it's already reasonable enough that 24 January should be adopted as the date for the calculation of interest.

Now, the other matter, of course, is the question of costs.

MR CHAIN: My Lord, I ask for costs, including the costs of both this appeal and the hearing below.

COURT: All right. Mr CHEUNG?

MR CHEUNG: I can't refuse that.

COURT: All right.

COURT: In the circumstances, I also make an order that the 3rd defendant is to pay the plaintiff the costs of the action including the costs of the hearing before Registrar Betts, to be taxed if not agreed. Insofar as the 3rd defendant's application to amend the defence is concerned, in the light of the order that I have earlier made, that particular application is also dismissed with costs. Right. Thank you.