XCHRX WOO WAI MAN AND ANOTHER v. TANG YING MING

HCA20929/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.20929 OF 1998

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REASONS FOR JUDGMENT

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Introduction

1. The Plaintiffs vendor brought this action against the Defendant purchaser for breach of the Sale and Purchase Agreement dated 23rd February 1998 by failing to compete the conveyance. In his Defence and Counterclaim, the Defendant denied this and counterclaimed that the Plaintiffs breached the Agreement.

2. The parties considered that the other side did not have a defence to their respective claims. The Plaintiffs took out an application for summary judgment pursuant to R.H.C. Ordinance 86 on 2nd June 1999 and the Defendant also did so by a summons dated 8th June 1999.

3. At the end of the hearing on 25th August 1999, I found in the Plaintiffs' favour and dismissed the Defendant's application. Although the point was not expressly dealt with at the time, it follows that the Counterclaim ought to be dismissed as well.

4. The following are the reasons for the decision.

Whether the Plaintiffs have failed to Answer the Requisition?

5. The first line of defence was that the Plaintiffs breached the Agreement by failing to answer a requisition raised by the Defendant in a letter dated 24th June 1998 which read :-

"We are instructed that it has come to our client's attention that the internal partitioning wall dividing the bedrooms of the property was demolished. Apparently, it is a structural alternation [sic] requiring the approval of the Manager under the provisions of the Deed of Mutual Covenant ('DMC')."

6. Clause 20 of the Sale and Purchase Agreement dated 23rd February 1998 provided :-

"Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 days after the receipt of the title deeds by the Purchaser's Solicitors otherwise the same shall be considered as waived (in which time shall be of the essence of this Agreement). The Purchaser shall be deemed to have accepted the Vendor's title if requisition or objection to title is not delivered to the Vendor's solicitors within the time stipulated above."

7. It appeared from the correspondence that the bulk of the title documents had been sent to the Defendant's solicitors on 25th February 1998. In a letter dated 5th March 1998, the Defendant's solicitors requested for certain further title documents and these were supplied in a letter dated 5th May 1998. Requisitions on title were raised; the last requisitions were contained in a letter from the Defendant's solicitors dated 12th May 1998. The reply was given in a letter dated (mistakenly) 5th May 1998; exhibit "TYM-4" to the affirmation of the Defendant shows that this was received on 14th May 1998. Nothing further was heard from the Defendant until the above-said letter of 24th June 1998.

8. In these circumstances, the Plaintiffs' solicitors in their letter responded as follows :-

"By virtue of Clause 20 of the Agreement ... , any requisitions or objections in respect of title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's solicitors within 7 working days ... Since the title deeds and documents were sent to your goodselves under our cover letter dated 25 February, 1998, the prescribed time for raising requisitions has therefore lapsed already ...

Further, by virtue of Clause 25 of the Agreement, it was stipulated that your client has inspected and is fully satisfied with and accepts in all respects the existing state and condition ... it's unreasonable and unacceptable for your client to raise such a requisition at such a late stage ...

Any way, as a matter of courtesy but without admitting our client's obligation or liability to answer to your requisition ... we have already seek [sic] our client's instruction on this matter. We are now instructed to say that our client has caused no structural alteration in the property and therefore no approval is necessary."

9. Ms Chan for the Defendant did not seek to argue that the requisition was raised within the time provided for in the Agreement. Instead, she argued that :-

(a) the requisition went to the root of title;

(b) as a result, there is no time limit for raising such requisition;

(c) even if it did not go to the root of title, the Defendant has used due diligence in raising the requisition on 24th June 1998.

10. In relation to these arguments, Mr Yue for the Plaintiffs relied mainly on the Court of Appeal case of Mexon Holdings Limited v. Silver Bay International Limited, Civ. App. No.76 of 1999. The requisition in issue before the Court of Appeal was as follows. The property in question was a unit of an office building formed by the partition of the floor in which it was located. In a certificate supplied with the title documents, it was certified that the sub-division of that floor complied with the Building Ordinance and did not require the submission of plan for approval. Shortly before completion the purchaser raised the requisition that the certificate did not deal with the requirements of the Fire Regulations. An opinion from the purchaser's architect confirmed that the property contravened reg.41(1) of the Building (Planning) Regulations by failing to comply with the Code of Practice on Provision of Means of Escape, since the maximum travel distance from the property to the entrance of the escape staircase exceeded 18 meters.

11. The following passages in Mexon Holdings were of particular importance to this part of the present case :-

"I turn now to Ms. Audrey Eu SC's submissions on behalf of the defendant [vendor]. She submits that the purchaser's requisition was outside the agreed period and does not go to the root of title; that in any case even if it does, the plaintiff here did not use due diligence, or it would have been aware of the breach of the Building Regulations. For the legal basis of the latter submission, she relies upon Hillier Development Ltd v. Tread East Ltd [1993] 1 HKC (CA) 285; 293C per Penlington JA." (p.4 of the transcript thereof) (underline and bold type supplied);

The authority commonly cited with respect to requisitions going to the root of title is the following passage from Emmett on Title (19th Ed.) reproduced in Giant River Ltd v. Asie Marketing Ltd [1990] 1 HKLR 297, 310I ... The expression 'which goes to the root of title' is commonly accepted as embracing not only the root, but also intermediate title in the chain of title. Where the intermediate root of title is an assignment or similar transaction, there is no difficulty in accepting it as going to the root of title. But the position is not as clear when what is in question is not of that nature and e.g. may only derogate from the ordinary incidents of the estate or interest to be transferred and acquired. The deficiency that is first relied upon here is the risk that Government might enforce the fire safety requirements of the Building Regulations. This, it is suggested before us, could be resolved in essentially two ways. One involving expenditure e.g. building an internal 'cupboard' or something similar which apparently have the effect of reducing the distance to the escape staircase ... ; and the other losing about 13% of the usable area of the property. The former, it seems to me, would not go to the root of title, see e.g. Active Keen Industries Ltd v. Fok Chi Keong [1994] 2 HKC 67, 83C. As to the latter unless the risk that Government might take enforcement action incompatible with quiet enjoyment i.e. entry, could be dismissed beyond reasonable doubt, it seems it would constitute a blot on the title. Findlay J's view was that it could not be so dismissed. Even so it does not go to the root or even the chain of title, although it may go to title.

Upon the foregoing basis, I have reached the conclusion that the plaintiff was not entitled to raise the requisition (pp.5-6 of the transcript) (underline and bold type supplied).

... Counsel for both sides accepted the dictum of Penlington JA in Hillier that even if a requisition goes to the root of title, the time limit imposed in the agreement does not run against the purchaser if, having used due diligence, he is unaware of the defect in the vendor's title ... ." (p.6 of the transcript)

12. Before going into the two issues raised during the hearing, two points should be mentioned.

13. First, the Plaintiffs' affirmation stated that the Defendant had inspected the property on quite a few occasions before the Agreement. This was denied by the Defendant who said she was only able to do so on 14th June 1998. Since this was an application for summary judgment, I proceed on the basis that the Defendant only inspected the property on 14th June 1998 and was only aware of the alteration (structural or not) since then.

14. Secondly, the "requisition" was raised on the bare assertion in the letter dated 24th June 1998 that there had been structural alterations made to the property. It is highly questionable whether this was a proper way of raising such kind of requisition. It is usual to base such kind of requisition on a proper foundation, for example, an opinion from an authorized person or architect that structural alteration(s) was/were found. Further, even if the "requisition" were properly raised, it is also highly arguable that the answer that there was no structural alteration had sufficiently met the bare assertion made by the Defendant. There was no lack of candor because a straight-forward answer was given. It would be unreasonable for the Plaintiffs to be expected to incur further costs and expenses in answering such kind of bare assertion made belatedly and apparently without any objective basis. Despite the above, I shall proceed to consider the two matters raised at the hearing since the Plaintiffs' solicitors did not seem to have questioned the propriety of the "requisition".

(1) Did the Requisition go to the Root of Title?

15. The relevance of the requisition raised by the Defendant to title of the property was said to be as follows. There was a Deed of Mutual Covenant dated 18th October 1984 relating to the property. Section 4(A)(4) states that :-

"No owner shall make any structural alterations to any part of the Estate owned by him which may damage or affect or interfere with the use and enjoyment of any other part or parts of the Estate ...."

16. Section 5(B)(1) confers a number of powers on the Manager including powers to ensure the maintenance of the units owned (Clause 1(3)), to remove any structure, installation which have been erected in contravention of the Deed (Clause 1(15)), to prevent any detrimental alteration or injury to any part of the building (Clause 1(26)) and to enforce the due observance and performance of the Deed (Clause 1(33)).

17. The Manager also has the powers to recover costs incurred : see Clauses 1(3) and 1(15). Section 5(E)(3), (4) and (5) empower the Manager to recover the costs due by civil action and to register a memorial of a charge for such costs against the unit in question. This charge is enforceable as an equitable charge by action.

18. Even if there had been structural alterations to the property which were covered by the Deed of Mutual Covenant, it appears that they were removable by incurring expenses. Thus the observations in Mexon Holdings to the effect that such kind of blot of title does not go to the root of title are applicable. I therefore find that the matter raised in the requisition did not go to the root of title. It was therefore raised out of time.

(2) Has the Defendant Used Due Diligence?

19. Even if the requisition went to the root of the Plaintiffs' title, Mr Yue argued that the Defendant was still obliged to use due diligence; otherwise the Defendant could not raise it outside the time allowed by the Agreement : see Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285 and Mexon Holdings, above.

20. Despite these decisions, Ms Chan still argued that a purchaser could raise a requisition on title at any time before completion provided it goes to the root of title. She relied on pp.295I to 296A of the Hillier Development case in support. This passage reads :-

"However the judge apparently considered that because the requisition went to the root of the title, neither the time limit of six days for raising requisitions nor the waiver applied, although the latter was not expressly addressed" (per Nazareth JA(as he then was)).

She said the Court of Appeal had not decided that the judge was wrong. Hence, his view remains good law.

21. With respect to Ms Chan, she has completely misread what Nazareth V-P said. Penlington JA (as he then was) had already decided (in an earlier part of the judgment in Hillier Development) that only where a purchaser who had used due diligence and was unaware of some defect in the vendor's title would the time limit imposed in the agreement not run against him : see p.293C to E of Hillier Development. Nazareth V-P already agreed with the reasons given by Penlington JA (at p.294H). In the passage quoted by Ms Chan, he was again only expressing his agreement with the judgment of Penlington JA and further went on to hold that the requisition in fact did not go to the root of title.

22. Ms Chan further argued that her client had used due diligence. She submitted that although the Defendant discovered the alteration on 14th June 1998, the Court should allow her more than the seven working days (which expired by the end of 22nd June) to raise the point because the Court should allow her some time to obtain legal advice from her legal advisers.

23. While (without deciding the point) it may be appropriate to do so in other cases, I do not consider it appropriate to give the Defendant such allowance in this case. First, there is no evidential basis to justify it. More importantly, the way the Defendant advanced her case was as follows. She claimed she was specifically looking for a two-bedroom flat and regarded this to be of utmost importance. At all times before 14th June 1998, she was under the impression that the property was a two-bedroom flat. It was only when she inspected it on 14th June 1998 that she found out the property had been converted into a "studio flat", that is, a unit with only one room and a toilet and kitchen. There is no evidence regarding what the Defendant did from 14th June to 24th June 1998. The proper inference from the letter dated 24th June 1998 was that the only thing she did was to instruct her lawyer to write the said letter (probably on or shortly before 24th June). I consider this was far from using due diligence. Due diligence in the context of this case required at least a timeous complaint, perhaps also supported by some proper foundation for making the complaint (for example, an opinion from an architect).

Who Breached the Agreement?

24. Ms Chan argued that even if the Defendant was not entitled to raise the requisition, it was the Plaintiffs, rather than her client, who breached the Agreement. Mr Yue for the Plaintiffs argued to the contrary.

25. In order to understand and decide on this point, it would be necessary to set out the correspondence between the parties from 24th June to 30th June 1998. The Agreement provided for completion to take place on or before 5:30 p.m. on 30th June 1998.

26. On 24th June 1998, the Plaintiffs' solicitors sent the apportionment account and copy receipts (for rates and management deposit) for handling by the Defendant's solicitors.

27. On 25th June 1998, the Plaintiffs' solicitors sent the split cheque instructions to the Defendant's solicitors. They also asked for the draft assignment and undertaking letter (in accordance with the normal Hong Kong conveyancing practice).

28. On 27th June 1998, the Defendant's solicitors repeated their said requisition and insisted on a reply. In a letter dated the same day, the Plaintiffs' solicitors disagreed with the Defendant's solicitors.

29. In a letter dated 29th June 1998 (but faxed at 2:40 p.m. on 30th June), the Plaintiffs' solicitors repeated their request for the draft assignment and undertaking letter. In the third paragraph of the letter, they stated that the Plaintiffs were all along able and willing to complete the sale and purchase and reminded the Defendant that completion fell due at 5:00 p.m. (instead of 5:30 p.m.) on that day.

30. In a letter dated 30th June 1998 (faxed at 3:31 p.m. on that day), the Defendant's solicitors stated that the Defendant was still dissatisfied with the answer to the requisition and that they had no further instructions to act for the Defendant.

31. In a letter dated 30th June 1998 (faxed at 5:04 p.m. on that day), the Plaintiffs' solicitors exercised the Plaintiffs' right to terminate the Agreement and forfeited the deposit paid by the Defendant.

32. On 2nd July 1998, under cover of their letter, the Defendant's solicitors returned the title deeds of the property to the Plaintiffs.

33. Ms Chan argued that the Plaintiffs had (through their solicitors) wrongfully breached the Agreement by unilaterally inserting a new term which purported to require the Defendant to complete earlier than contractually provided for. On the other hand, Mr Yue argued that by the time of the letter faxed by the Plaintiffs' solicitors at 5:04 p.m. on 30th June, the Defendant was clearly in anticipatory breach of the Agreement and the Plaintiffs were no longer obliged to wait for the original time scheduled for completion.

34. In Chitty on Contracts (1994) 27th Ed., it was stated :-

"If, before the time arrives at which a party is bound to perform a contract, he expresses an intention to break it, or acts in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil his part, this constitutes 'anticipatory breach' of the contract and entitles the other party to ... 'accept' the renunciation, treat it as discharging him from further performance, and sue for damages forthwith, or he may wait till the time for performance arrives and then sue." (para.24-019) (underline and bold type supplied)

Further :-

"There is no distinction between the tests for what is an anticipatory breach and what is a breach after the time for performance has arrived. It follows, therefore, that where the conduct of the promisor is such as to lead a reasonable person to the conclusion that he will not be able to perform when the time for performance arrives, the promisee may treat this as a renunciation of the contract and sue for damages forthwith. He is allowed to anticipate an inevitable event and is not obliged to wait until it happens." (para.24-022) (underline and bold type supplied)

35. While she accepted the above to be the correct legal propositions (see para.16 of her written submissions), Ms Chan submitted that it was possible that the Defendant might change her mind within the 26 minutes between 5:04 p.m. and 5:30 p.m. on 30th June 1998 and decided to purchase the property. It is to be noted that in relation to "anticipatory breach", the conduct in question is to be judged from the viewpoint of a reasonable man; in other words, an objective test is to be applied. Absolute certainty is not required. This accords with the general principles in contract law. Further, if certainty were required, it would defeat the concept of an "anticipatory breach".

36. By 5:04 p.m. on 30th June 1998, from the Plaintiffs' point of view, the Defendant :-

(a) insisted on a requisition which clearly was raised out of time;

(b) failed to provide a draft assignment and undertaking letter in accordance with normal conveyancing practice;

(c) ceased to give further instructions to her solicitors to proceed with the transaction.

37. In these circumstances, I find that it was reasonable for the Plaintiffs to have concluded that the Defendant did not intend to fulfil her part of the Agreement and hence accepted the repudiation without waiting until 5:30 p.m. on 30th June 1998. It is true that the letters from the Plaintiffs' solicitors were unsatisfactorily worded, but that did not detract the strength of the Plaintiffs' argument that the Defendant was already in anticipatory breach of the Agreement.

38. Having decided in the Plaintiffs' favour on this part for the above reasons, it was strictly unnecessary to consider the matter further. If it were necessary to do so, I would have reached the same conclusion relying on the observations of the late Hunter JA in Camberra Investment Ltd v. Chan Wai-tak [1989] 1 HKLR 568.

39. In that case, on the day of completion (a Saturday), between 2:30 p.m. and 3:00 p.m., the purchaser delivered a personal cheque to the vendor for the outstanding balance of the purchase price. An attempt was made to contact the vendor but this was unsuccessful. On the following Monday, the purchaser delivered to the vendor two bankers cashier orders in exchange for the personal cheque. The vendor invited the purchaser to attend for completion but the purchaser did not do so and no completion took place.

40. The Court of Appeal held that the purchaser was entitled to tender payment at any time on the day of completion up to midnight of that day. Thus, the vendor's rescission was premature and the purchaser was entitled to specific performance of the agreement. At p.574 of his Judgment, Hunter JA said :-

"... I therefore conclude that time for completion did not expire at about 1 pm on 28 February and that the defendant's [vendor's] purported notice of rescission was premature and ineffective. ...

In my judgment this contract remained uncompleted at midnight on 28 February by the fault of both parties. It did not then terminate as was at one time suggested. It remained on foot with the substitution of a reasonable time for the failed express condition."

41. Thus, even if the Plaintiffs in this action were not entitled to give the notice requiring completion by 5:00 p.m., the purported notice would have been "premature and ineffective". It was open to the Defendant to complete the transaction within a reasonable time if she had wanted to. She failed to do so. On 2nd July 1998, the Plaintiffs' solicitors wrote another letter to the Defendant accepting her repudiation and forfeiting the deposit. I found that by that time they were entitled to do so. That letter therefore was effective in terminating the Agreement.

Other Matters

42. For completeness sake :-

(a) I have not taken into account the Plaintiffs' assertion in their affirmation that when the Plaintiffs' solicitors referred to 5:00 p.m. (instead of 5:30 p.m.) in their letters, they did so by mistake. Even if that be true (and no finding was made either way), the Defendant's position would have to be looked at objectively. It would therefore not be right to decide the matter based on matters which would not have been known to the Defendant at the time;

(b) for the same reason, the Defendant's assertion that she had the financial means to complete the transaction was not taken into account. This was not communicated to the Plaintiffs prior to the time of the Defendant's affirmation filed herein;

(c) further, since the architect's opinion of the Plaintiffs was not communicated to the Defendant before 30th June 1998, I found that it could not be relied upon by the Plaintiffs as a further answer to the Defendant's requisition.

Conclusion

43. For the above reasons, I found in the Plaintiffs' favour. As stated earlier, the Counterclaim was not formally dismissed at the end of the hearing on 25th August 1999. It follows from the decision made at that time and the reasons given herein that the Counterclaim must also be dismissed.