AIE CO. LTD. v. KAY KAM YU

1991, No: A48.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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The Agreement

1. On 1 November 1990, the parties entered into an agreement in terms of which, in plain language, the plaintiff agreed to buy and the defendant agreed to sell flat D on the third floor of 10 Nassau street, Mei Foo Sun Chuen, Kowloon, at a price of $1.148 million. By this date, the plaintiff had paid $114,800 to the defendant's solicitors as a deposit. Under this agreement, completion was to take place on or before 23 November 1990. Completion did not take place on that date, and, when the plaintiff offered to complete later, the defendant declined to do so. The plaintiff now seeks to enforce the agreement

The Issues

2. The pleadings are long and complicated, but the issues may be summarised as follows -

1. Was the plaintiff in breach of the agreement by failing to complete in circumstances in which the defendant was entitled to elect to treat the agreement as at an end?

2. Assuming the defendant was so entitled, did she so elect?

The Evidence

3. At the outset, I should make it clear that references in this judgment to the plaintiff's solicitors and the defendant's solicitors are references to the solicitors involved in the conveyancing transaction. At trial, the parties were represented by other solicitors.

4. The evidence consists largely of correspondence between the plaintiff's solicitors and the defendant's solicitors. It is convenient to set out this correspondence and other significant events in tabular form:

Failure to Complete

5. The plaintiff says it did not offer to complete on the contractual date because the defendant did then show good title. She did not show good title at any time after that date until 15 December 1990 when he did offer to complete.

6. Obviously, the defendant was obliged to show and give good title. The plaintiff says that she did not do so until 15 December. She did not show good title, the plaintiff says, because -

1. there was an memorandum of outstanding service and management fees registered against the property, which was not discharged until 17 December 1990 and the discharge not registered until 27 February 1991;

2. the assignment from the defendant's predecessor in title to the defendant had not been registered within one month.

7. There can be no doubt that the plaintiff was entitled to assignment of the property free from the burden of the outstanding service and management fees. The plaintiff was entitled to be assured that this burden would be discharged. It would have been a very simple matter for the defendant's solicitors to have given this assurance, but they did not do so. I have been given no explanation why they did not do so. It is a petty matter, but the plaintiff had the right to receive a simple assurance that the property, when acquired by it, would not be charged with this burden. If it is said that the plaintiff is making too much of a minor problem, which it eventually waived, it was the defendant's solicitors who gave it the opportunity to do so.

8. The assignment to the defendant was dated 11 October 1990, but it was not registered until 15 November 1990. I have been given no explanation for the delay by the defendant's solicitors in attending to the registration.

9. Section 3 of the Land Registration Ordinance [Cap 128] provides -

"... all [documents] ... registered in pursuance [of this Ordinance] shall have priority one over the other according to the priority of their respective dates of registration... ."

10. Section 5 of that Ordinance says -

"All [documents] ... registered within one month after the time of execution ... shall severally be ... in a like manner entitled to priority, and shall take effect respectively by relation to the date thereof . . . ."

11. The assignment to the defendant was not registered within the period of one month. It follows that section 5 did not apply, and priority arose only from the date of registration. There was, therefore, a period during which an instrument dealing with the property, created prior to 15 November 1990 and registered within one month, could take priority over the assignment to the defendant.

12. There was a risk, therefore, that, if the plaintiff completed before 15 December, or, perhaps, 14 December 1990, it could find itself with a title encumbered, to a greater or lesser extent, by some other dealing with the property having priority. Was that risk sufficiently real to justify the concern expressed by the plaintiff's solicitors? The test used by Lord Russell of Killowen in M.E.P.C. Ltd. v. Christian-Edwards [1981] AC 205 at 220 C-D was that " ... the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the encumbrance ... ." The onus is on the defendant. In this case, the defendant made no attempt whatsoever to satisfy the plaintiff's concern. Whether she made any inquiries at all, I do not know. It may be that, after exhaustive inquiries, she would have been unable to satisfy the test propounded by Lord Russell. In this case, she would have been well advised to accept the proposal by the plaintiff's solicitors that completion be delayed until the risk disappeared. On the other hand, it may be that the defendant or her solicitors could have raised such facts and circumstances that the test was satisfied. If she had conveyed these to the plaintiff, and it had still refused to complete, the plaintiff would have been in breach. As things are, the defendant has made no attempt to show that there was no real risk.

13. That there was a risk seems to be accepted by the defendant. She says that the agreement between the parties dated 1 November 1990 was registered on 19 November 1990, and, by virtue of section 5 of Chapter 128, her title as beneficial owner of the property was deemed to be good as from 1 November 1990. There were no instruments affecting the property registered between 19 November and 1 December 1990, and, as from 1 December 1990, others interests registered would be subject to the beneficial interest of the plaintiff. "In the premises aforesaid, as from 1 December 1990 there was no risk on the plaintiff's title to be derived or obtained from the defendant."

14. This, even if accepted, is not to the point, and the defendant's solicitors knew it was not to the point because they never raised it as comfort to the plaintiff in the correspondence between the parties. Completion under the agreement was to be on 23 November 1990, not after 1 December. In any event, the only priority achieved under the registration of the agreement of sale was in respect of an equitable interest. This was not what the plaintiff bargained for.

15. But, the defendant says in her defence, this objection did not touch upon the root of the "plaintiff's" title, and not having been delivered within seven days after delivery of the title deeds, the plaintiff is deemed, by virtue of clause 11 of the agreement, to have accepted the defendant's title.

16. Clause 11 of the agreement reads as follows-

"(a) Any requisition or objection on title shall be delivered to the Vendor's solicitors within seven days after delivery of the title deeds to the solicitors of the Purchaser.

(b) The Purchaser shall be deemed to have accepted the Vendor's title if requisition or objection on title is not delivered to the Vendor's solicitors within the times stipulated above."

17. Clause 11(b) does not say, as some such clauses do, and as could have been said here, that all requisitions or objections not made within the fixed time shall be considered waived. Clearly, the requisition relating to the memorandum of outstanding service charges and management fees was delivered within seven days, so it cannot be that the plaintiff is deemed to have accepted the defendant's title. To construe the provision as saying that, if the purchaser does not deliver a particular requisition or objection within the time stipulated, he is deemed to be disabled from questioning the vendor's title in relation to that particular requisition or objection would be to give the clause an interpretation in favour the person who stipulated for it that is not justified by its strict wording.

18. In any event, the objection raised by the plaintiff goes to the root of the defendant's title, and it is clear that such objections may be raised after the time limit. This must be so, otherwise an agreement such as this would oblige a purchaser to accept something he had not bought. The objection raised by the plaintiff related to a potential defect in title that the defendant could not, or did not, show would not arise so that the plaintiff would not be at risk of a successful assertion against him as to his title.

19. On 15 December 1990, immediately after the risk had disappeared, the plaintiff offered to complete. By implication, it waived the problem regarding the memorandum of outstanding service charges and management fees.

20. In the result, I find that the plaintiff complied with his obligation to offer completion as soon as the defendant's title was clear, and it was not in breach of its obligations under the agreement.

Did the Defendant elect to Terminate the Agreement?

21. My concern here is to determine whether or not the defendant's allegation that she terminated the agreement on 6 December 1990, assuming she was entitled to do so, is made out. If she did not purport to so terminate, then the agreement is subsisting and either party is entitled to enforce it.

22. The defendant's only allegation of termination of the agreement is contained in paragraphs 58 and 59 of the defence:

"58. On 6th December 1990, when she was entitled so to do, the defendant informed the plaintiff's solicitors of her intention to apply to the Court for a declaration that her [sic] was entitled to forfeit the initial deposit and further deposit paid by the plaintiff due to her breach [sic] and for rescission of the Agreement and also offered means to mitigate the loss and damage of the plaintiff.

59. In the premises aforesaid, the letter of the 6th December 1990 amounted to the defendant's acceptance of the breach of the plaintiff as an end to the agreement."

23. Because of its importance to the defendant's case, I set out here the hand-written letter of 6 December 1990 in full:

"Messrs Kao Lee Yip
Solicitors
Hong Kong

Att Miss T. Tse.

BY FAX AND HAND
URGENT

Dear Sirs,

Re Flat D 31F 10 Nassau St
Mei Foo Sun Chuen Kln

Re your letter of 26/27 Nov 1990. No proposal with a view to a "viable solution" having come from you thus far, we shall put forward ours without irrelevancies.

1. The problem: you contend we have not shown a good title on date of completion and try to impose conditions; we contend we have shown a good title and refused to be bound by further conditions.

2. Re paragraph 6 of your letter of 27/11/90 - Re our letter to you of 22/11/90 - it should read "... to which we totally disagree..." Our apology for this slip of the tongue or pen. If your contention that we've not shown good title is based on this "slip" please let us know.

3. If your position remains the same despite (2) supra, insisting on completion and on your terms, we propose :-

a) viable solution I

i) complete today (since your client insists on completion in any case and is ready and willing to do so at any time)

ii) we will agree (under protest) to your demand to hold the balance of purchase price as stakeholders until 15/12/90.

iii) we still contend we've shown a good title on the date of completion (as extended) and that your refusal to complete entitled our client to forfeit the deposit and rescind the Sale and Purchase Agreement and to his other rights under the same S & P Agreement. We shall reserve the right to go for a declaration to this effect under s. 12 Conveyancing & Property Ordinance.

b) viable solution II

Don't complete until everything is settled by a s. 12 Vendor and Purchaser Summons.

We urge you to accept Solution I as all your demands have been met and since your client insists on completion (or specific performance), it does have the merit of mitigation of loss performed in advance for all parties concerned.

To sum up, for the avoidance of doubt,

1/ Complete today; 2/ We reserve all our client's rights as if no completion had taken place and 3/ Go for a s 12 Declaration and shall abide by the Court's guidance/decision.

Please revert soonest."

24. Whatever was in the mind of the writer of this letter, which, in my view, is confused and confusing, it cannot be said by any stretch of the imagination that it constituted an unequivocal election to treat the contract as at an end. An invitation to implement the agreement by completion, even with a reservation of rights "as if no completion had taken place" (whatever that might mean), is totally incompatible with an election to treat that same agreement as at an end. An indication that the defendant did not, in fact, decide to elect to treat the agreement as at an end comes from her subsequent conduct. If the defendant had made an unequivocal election to treat the agreement as at an end, and not to keep the pot boiling, what possible reason could there be for allowing the plaintiff to inspect the flat on 20 December 1990?

25. Accordingly, I find that, whether or not the defendant was entitled to terminate the agreement, she did not do so, and the agreement remained alive for the benefit of both parties

Comment

26. This is a sad case. The difficulties in the way of the completion of the transaction were by no means insurmountable. They were the sort of ordinary practical problems that arise in everyday conveyancing practice; very little wit or wisdom was required to deal with them. They should not have given rise to even a serious dispute, let alone an expensive three-day action in the High Court. The application of a modicum of common sense and practical concern to keep clients out of litigation should have led to the satisfactory completion of the transaction with little delay and expense to the clients.

Specific Performance

27. The plaintiff claims specific performance of the agreement. This is a discretionary remedy, but one that is usually granted in relation to agreements for the sale of land unless there is some good reason not to. I know of no such reason here, and the defendant has not attempted to advance one. I grant a decree of specific performance of the agreement.

Damages

28. The defendant was in breach of the agreement by failing to complete. In my judgment, the plaintiff is entitled to any damages suffered by it arising from this breach, in addition to the decree of specific performance. On 11 March 1994, Master Beeson ordered that "the issue of damages be tried subsequently in such manner as may be directed by the trial judge or by further order.". I order that the plaintiff be entitled to damages be assessed.

Interest

29. The parties are agreed that any monetary award bear interest at the judgment rate, and I so order. This, the plaintiff suggests, should date from the issue of the writ. This seems fair, and I so order, subject to this being varied if it appears, in the inquiry into the quantum of damages, that some other date is appropriate.

Costs

30. There seems no reason why the plaintiff should not have its costs. I make an order nisi that the defendant pay the plaintiff's costs of action.