LEE WAI KIE AND OTHERS v. EMA REALTY LTD.

HCMP2335/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2335 OF 1998

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J U D G M E N T

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1. It is the duty on the part of a vendor of landed property, not only to show good title but also to answer requisitions satisfactorily in good time before completion so that the purchaser is given reasonable time to consider the title of the vendor and his own position. The aforesaid principle has been decided by the following cases, namely, Active Keen Industries Ltd. v. Fok Chi Keong [1994] 2 HKC 67 at 78I-79A; Jasmin Enterprises Ltd. v. Chan Yuk Hon [1998] 4 HKC 224 at 226G-I.

2. This principle is the main concern of this Vendor and Purchaser Summons taken out by the Purchasers Plaintiffs. The Sale and Purchase Agreement was dated 17 April 1998 and the original completion date was 7 May 1998. In the conveyancing transaction, M/s Johnson Stokes & Master ("JSM") act for the Plaintiffs Purchasers, whereas M/s Phyllis K.Y. Kwong & Leung ("PKL") act for the Defendant Vendor.

The Requisitions

3. The requisition in question concerned with a "Provisional Agreement" dated 7 September 1996 entered between one Prontowise Limited as Vendor and EMA Design & Industries Limited/EMA Realty Limited (i.e. the Defendant) as Purchasers. This Provisional Agreement was annexed to one corresponding Formal Sale & Purchase Agreement dated 21 September 1996 between Prontowise and the Defendant only and registered at the Land Registry on 11 December 1996 by Memorial No.6845509. (Whether the purchasers in the Provisional Agreement were the two EMA companies or either one of them is the subject matter of the requisition which will be apparent herein below.)

4. After the title deeds were sent to JSM by PKL on or about 14 April 1998, JSM discovered the following :-

(a) Under the Provisional Agreement, the Purchaser was named as "EMA Design Industries Limited/EMA Realty Limited" and the signature for the then Purchasers was stated to be signed by a person signing "for and on behalf of" "blank" (i.e. it was not stated on whose behalf the signature was made), whereas

(b) Under the corresponding Formal Sale and Purchase Agreement, only "EMA Realty Limited" was named as Purchaser.

5. Thus, on 17 April 1998, JSM asked for evidence of payment of stamp duty for the transfer of interest by EMA Design & Industries Limited to EMA Realty. In other words JSM there and then considered that EMA Design & Industries Limited and EMA Realty Limited were Purchasers and there was a transfer of interest from the former to the latter, extinguishing the former's beneficial interest under the Provisional Sale and Purchase Agreement. On 1 May 1998, i.e. nine days later, PKL replied that the two companies had the same directors and shareholders. There had been no transfer of beneficial interests in the property, hence no stamp duty was payable.

6. Pausing here for a moment, this purported answer to the requisition that there was no transfer of beneficial interest from one to another is unsupported by any fact except the other contention that the two companies have the same directors and shareholders. However, this cannot be the basis of no transfer of beneficial interests in the property. Further, PKL did not deny that the purchasers under the Provisional Agreement were the two said limited companies, i.e. the assumption of JSM.

7. JSM was of the view that some beneficial interest would have remained in EMA Design & Industries Limited until it had transferred or relinquished its interest. JSM naturally and reasonably expected that there might be some sort of nomination. Thus on 4 May 1998 (i.e. three days later and three days before the completion date) JSM requested for the relevant nomination which enabled EMA Realty Limited to enter into the Formal Sale and Purchase Agreement alone and evidence that no stamp duty was payable as PKL stated that there was no transfer of beneficial interest. In the afternoon of 6 May 1998, as a result of telephone conversation between JSM and PKL, JSM put on record that :

A. there was no nomination as informed by PKL;

B. the Defendant intended to rely on estoppel by virtue of common directors and shareholders (yet no factual evidence was produced to support this contention by PKL).

JSM further suggested that there might be a solution to the matter by arranging the two companies to enter into a document recording that (if that was the case) the two companies entered into the Provisional Agreement as agent for EMA Realty only and that the deposit was paid by the latter only. This document would have to be adjudicated by the Stamp Office for payment of stamp duty and the Vendor would of course have to be responsible for the stamp duty payable. Such an undertaking is necessary from the Vendor if payment is required by the Stamp Office. There was no written reply to the aforesaid letter in spite of a follow-up letter on 7 May 1998 which is the date of completion. However, as a result of a telephone conversation, the respective parties have agreed to extend the completion date from 7 May 1998 to 13 May 1998.

8. On 8 May 1998, JSM requested again for the draft document to account for the transfer of interest of the property from one limited company to another. On 11 May 1998, PKL replied as follows :

" We shall let you have the original Nomination signed by EMA Realty Limited and EMA Design & Industrial Limited once the same is received from the Land Registry."

Apparently, PKL was suggesting that such a Nomination did exist and was registered, or was in the process of registering with the Land Registry. The land search there and then, however, did not reveal such a document. Further, instead of sending JSM right away with a copy or certified true copy of the Nomination with an undertaking to produce the original Nomination for JSM's consideration right away, PKL considered that it would not matter to send the document later, albeit the scheduled completion date would be in two days' time, i.e. on 13 May 1998. I must say this is a bit tardy on the part of the Vendor's solicitors.

9. Naturally, on 12 May 1998, JSM immediately asked for clarification whether the two companies had entered into Nomination before entering into the Formal Sale and Purchase Agreement. They also asked for a certified true copy of the same showing that the same was not stampable with stamp duty. However, on the same day, PKL simply repeated their contention that :-

"... We shall let you have the original Nomination signed by EMA Realty Limited and EMA Design & Industrial Limited duly registered from the Land Registry."

It was not stated when and whether it would be in time for the completion next day.

10. On the date of completion, i.e. 13 May 1998 at about 10:35, JSM again asked by their letter for a certified true copy of the Nomination as soon as possible.

11. At 12:32 of that day, PKL then faxed a copy of the Nomination dated 7 September 1996 executed by EMA Realty Limited and EMA Design & Industries Limited jointly as nominator and EMA Realty Limited as beneficial owner. It was not a certified copy. The faxed copy however created more confusion than solution. The date "7 September 1996" was in fact the date of the Provisional Agreement. At about 13:09, JSM again enquired as to how the Nomination is not chargeable with stamp duty under s.29(A)(1)(b) of the Stamp Duty Ordinance. They further requested PKL to confirm that their firm would undertake to submit the Nomination for stamping/adjudication by the Stamp Office and undertake to settle all stamp duty and penalty, if any, in respect of the document as and when required by the Stamp Office.

12. Apparently, the Nomination purported to show that on the very same day of the Provisional Agreements, the two companies signed another document to confirm that only EMA Realty Limited had beneficial interest in the property. However, the Nomination could not possibly be executed on 7 September 1996 since Schedule 2 thereof referred to the Provisional Agreement with a Memorial No.6845509 - a number which came into existence only on the date of registration of the Formal Agreement on 11 December 1996. This added to the confusion of the matter. Thus at about 16:48, JSM wrote again and asked for the clarification and reiterated and stated that the document had not answered their requisition.

13. From the affidavit evidence filed by the Defendant's solicitors, in fact a short while previously at or about 15:43 of that day, a Miss Tracy Lee, a conveyancing clerk of PKL, after a telephone conversation with a Mr John Tsang of JSM, faxed to JSM the following :

(i) A copy of the Provisional Agreement dated 7 September 1996 with "EMA Design & Industries Limited" crossed out and under the signatory after "for and on behalf of", EMA Realty Limited was filled in; and

(ii) An undated Chinese Memorandum signed by Prontowise Limited, the Vendor of the Provisional Agreement confirming the agreement that either EMA Design & Industries Limited or EMA Realty Limited could execute the subsequent Formal Sale and Purchase Agreement if they could inform the Vendor before 21 September 1996.

14. JSM of course had sight this document ("the other version of the Provisional Agreement") for the first time which is at variance with the one registered with the Land Registry. This is also at variance with the Nomination purportedly dated 7 September 1996.

15. Miss Phyllis Kwong of PKL contended in her affirmation that whatever confusion has arisen, such confusion had been sufficiently clarified by Miss Tracy Lee during the telephone conversation with Mr John Tsang of JSM.

16. At about 17:00 of the same day, Miss Kwong had a telephone conversation with Mr John Tsang of JSM. She contended for the first time that only EMA Realty Limited was a party to the agreement and this was plain by the use "/" instead of "and" between the names of EMA Design & Industries Limited and EMA Realty Limited on the Provisional Agreement. She was of the view that no amendment to the Provisional Agreement annexed to the agreement was necessary. However, if JSM would insist to have the same amended, she was willing to give an undertaking to amend the Provisional Agreement and have the Agreement re-registered at the Land Registry so as not to delay the completion.

17. She also reiterated that the Nomination was prepared only at the request of JSM and was totally unnecessary and superfluous. She was also prepared to give an undertaking upon completion to settle any stamp duty payable thereon as and when required. As a matter of fact, the Nomination was in the process of stamping and registration and would be sent to JSM once the registration process was completed. JSM of course said they had not requested for a Nomination but only suggested that that (if in fact was the case) could be a solution to the matter.

18. Mr John Tsang asked for some more time to consider the position, however, Miss Kwong was only willing to extend the time to 6:30 p.m. that day and no further.

19. I must pause here for a moment and point out that after these proceedings were instituted, PKL produced a letter dated 14 November 1996 addressed to the Stamp Registrar together with the other version of the Provisional Agreement with EMA Design & Industries Limited crossed out and EMA Realty Limited filled in after the signature clause of "for or on behalf of". There was no explanation in the affirmation why this other version of the Provisional Agreement was not the one registered together with the Formal Sale and Purchase Agreement, and why PKL could not answer the requisition by producing this other version of the Provisional Agreement earlier on. Counsel for the Defendant told me that his instructions were they had difficulties in locating this document until the day of completion on 13 May 1998.

20. Has the Vendor's solicitors answered the requisition satisfactorily and within a reasonable time? On the date of completion at about 5:00 p.m., the Purchaser's solicitors had the following queries :-

1. The Provisional Agreement annexed to the Formal Sale and Purchase Agreement registered at the Land Registry did not bear any such deletion at the beginning and addition at the end.

2. The fax copy of the undated Memorandum of Prontowise Limited which stated that they agreed that either one company might become the Purchaser provided that notification should be made before 21 September 1996, surfaced for the first time that afternoon.

3. Both the aforesaid documents were not certified true copies.

4. The two said documents were incompatible with the Nomination purportedly dated 7 September 1996 which is untrue and by itself might attract stamp duty. The letter of PKL addressed to the Stamp Registrar was not disclosed there and then.

21. The aforesaid events, in my view, demonstrated what the Plaintiffs submitted : that the Defendant's solicitors changed the way they answer the requisitions more than once. Every time their answer would create new questions and doubts. The Nomination bore a false date. Instead of explaining the Nomination, they produced for the first time another version of the Provisional Agreement with deletion and addition not appearing on the copy registered with the Land Registry together with a handwritten memorandum, both of which were incompatible with the Nomination. To say the least, the way the requisitions were answered was very confusing. Instead of putting on record their oral answer over the phone and their oral undertaking in writing to JSM and at the same time giving the other side reasonable period of time to consider the new position, they insisted to complete the conveyancing in an hour's time at the latest 6:30 p.m. that day.

22. Thereafter the Vendor forfeited the deposit whereas the Purchasers on the other hand accepted the repudiation of the Vendor and demanded for the return of the same.

23. All in all, I accept the Plaintiffs' submissions that their solicitors were not given reasonable time to consider the matter. In my view, I consider the Vendor's solicitors were not answering simple requisitions directly. It is highly regrettable that in fact they had a good answer to the requisitions but did not do so until the 11th hour. Also it was done in a confusing manner. Further they had not given the other side reasonable time to consider the matter. Thus, by insisting on completion on that day, there was a further breach of the contract.

24. Accordingly, the Plaintiffs are entitled to the return of the deposit and the wasted expenditure by way of estate agent's fees, conveyancing costs and stamp duties paid as claimed in their summons. There shall also be an order nisi of the costs to the Plaintiffs against the Defendant.