ZHENG CHULIN v. WO KEE HONG KONG INDUSTRIAL LTD

DCCJ 2581/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2581 OF 2010

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J U D G M E N T

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1. In this action the plaintiff sues for return of the deposits paid for the purchase of two units in an industrial building (“B1” and “B2” respectively) and/or damages.

Background

2. The parties entered into two sale and purchase agreements respectively for B1 and B2 on 30 April 2008

3. On 11 March 2009, the parties entered into two supplemental agreements respectively for B1 and B2 to postpone the completion date to 28 February 2010 (“Supplemental Agreements”). Under the Supplemental Agreements, the plaintiff agreed and did pay further deposits.  The plaintiff further agreed to pay to the defendant the government rent, rates and management fees for each unit until actual completion.

4. Pursuant to the Agreements and Supplemental Agreements, the plaintiff paid a total of $219,605.10 for B1 and $229,853.30 for B2.

5. On 24 February 2010, the plaintiff via his solicitors (“TPY”) wrote to the defendant’s solicitors (“TT”) proposing to postpone the date of completion from 26 February 2010 to 12 March 2010.  TT wrote to refuse on the defendant’s behalf the very next day.

6. No completion took place on 26 February 2010.  TT wrote on the same date to TPY to record the defendant’s acceptance of the plaintiff’s breach as repudiation of the Agreements and Supplemental Agreements and forfeiture of the deposits as liquidated damages.

7. On 27 February 2010, TT wrote to TPY to demand return of all title deeds and documents in respect of B1 and B2 and TPY duly complied on 1 March 2010.

8. On 3 March 2010 TPY wrote to TT to assert that the defendant was in breach of the Agreements in that the plaintiff was not allowed to inspect the two units before completion despite repeated demands and that it had come to the plaintiff’s notice that there was an existing tenancy in each of the units so that vacant possession in fact could not be delivered on or before the scheduled completion date.  TT refuted such allegations by their letter of 10 March 2010.  The plaintiff commenced this action on 28 July 2010.  The defendant counterclaims for various declarations and damages.

The plaintiff’s case

9. In his Re-Amended Statement of Claim, the plaintiff avers that the defendant failed to deliver vacant possession on 26 February 2010.  According to the particulars provided in paragraphs 9 and 20 respectively for B1 and B2, on or about 26 February 2010, Mr. Lee Kam Bor, the estate agent representing both parties (“Mr. Lee”), informed the plaintiff that upon his inspection of the units, he found a tenant in each unit who had no intention to move out.  The plaintiff immediately contacted Mr. Cheng Chung Por of the defendant (“Mr. Cheng”) who confirmed there was an existing tenant in each unit and vacant possession could not be given.  Mr. Cheng further said the plaintiff did not have to buy the units if he did not want to.  The plaintiff was also informed of the rental being paid for each unit.  In the premises, the defendant failed to provide vacant possession to the plaintiff or otherwise evinced an intention no longer to be bound by the Agreements and Supplemental Agreements and was therefore in breach of the same.

10. By way of further and better particulars, the plaintiff pleads that on or about 26 February 2010, Mr. Lee was on the floor of B1 and B2 posting advertisements for sale of other properties in the same building.  When passing by B1 and B2, he noticed that both units were still being used by tenants as storage facilities.  Looking from outside B1 and B2, he noted that both units were fully occupied and there was no indication that the tenants were moving out.  Mr. Lee immediately called the plaintiff to inform him of the same.  Thereupon the plaintiff telephoned to enquire with Mr. Cheng who replied that he would not do anything about the tenancies which were attracting rentals at $5,000 and $6,000 respectively, and that the plaintiff did not have to buy B1 and B2 if he did not want to.

11. The plaintiff was the only witness.  It is of note that despite his role in the present dispute, Mr. Lee was not asked to give evidence. 

12. For reasons which will become clear, I need to recount what the plaintiff says in his witness statement in some detail.  There the plaintiff says during the downturn of the property market in November 2008, he had evinced to Mr. Lee an intention to abandon the deals and allow his deposits to be forfeited.  Subsequently, Mr. Lee conveyed to him the defendant’s hope to postpone completion and its intention to rent out the units during postponement.  Against such background the Supplemental Agreements were signed.  Around 10 January 2010, as completion was imminent, he visited the defendant at the latter’s office to confirm the parties’ intention to complete when the defendant (without identifying who from the defendant) informed him that B1 and B2 had been rented out at monthly rentals of $5,000 and $6,000 respectively and suggested that after completion the plaintiff could continue with the tenancies at the same rentals.  He gave no consideration to the suggestion.  Around mid February 2010, he went to B1 and B2 to inspect the same and saw inside B1 a long table and a dozen chairs at centre as well as some wooden bookshelves and a steel rack on each side of the main door.  He also saw inside B2 some miscellaneous items piled up to about 2 metres high.  Being skeptical of the defendant’s ability to deliver vacant possession on the scheduled completion date, he talked to the defendant (again without identifying who from the defendant) on 23 February 2010 and asked to see the tenancy agreements but the latter said the tenancy agreements could not be found.  Meanwhile, as he was gathering funds for completion, he proposed to postpone completion to 12 March 2010 (without stating the defendant’s response to his proposal).  By 26 February 2010, he had gathered sufficient fund to pay the balance due for both B1 and B2 but then the defendant (again without identifying who from the defendant) demanded an extra sum of $40,000, which was subsequently increased to $60,000, in return for postponement.  On 26 February 2010, he instructed Mr. Lee to inspect B1 and B2 who upon arrival found B1 and B2 to be occupied by tenants and there was no indication the tenants were moving out.  The witness statement then jumps to the conclusion that the defendant had failed to tender vacant possession on the date of completion in accordance with the Agreements and Supplemental Agreements. 

13. While the difference between the pleaded case and the witness statement of the plaintiff may require a discerning eye to tell, the plaintiff’s departure from his own pleaded case during cross examination by Mr. Kenneth Wong, counsel for the defendant, as one will see, can hardly escape anyone’s attention.

14. When asked whether the parties discussed the possibility of renting out B1 and B2 at the time of signing the Supplemental Agreements in March 2009, the plaintiff said he understood from Mr. Lee that Mr. Cheng had indicated he would add a clause to reflect the intention to rent out B1 and B2.  Oddly enough, he went on to say he was not sure if this clause was in fact added despite having personally signed the Supplemental Agreements which were reportedly explained to him by a clerk to TPY. 

15. The plaintiff clarified that the defendant was all along represented by Mr. Cheng who told him about the rental income of B1 and B2 on 10 January 2010.  But then he was unable to explain why it is pleaded in his further and better particulars that Mr. Cheng told him about the tenancies on 26 November 2010 instead of 10 January 2010.  He could similarly offer no explanation for the absence of any reference to the alleged conversation on 10 January 2010 in the Amended Statement of Claim other than attributing this to possible omission by his solicitors. He appeared to be oblivious to the statements of truth he appended to his pleadings. 

16. As to his alleged inspection in mid February 2010, the plaintiff clarified that he merely took a quick look at B1 and B2 at the door front instead of actually inspecting the premises.  He went on to say he had on two other occasions met with Mr. Cheng in the latter’s office on 11^th Floor of the same building to demand to inspect B1 and B2 but to no avail.  Despite this, he admitted that he had not instructed his solicitors to formally make a demand for inspection but was unable to give a credible reason for failing so to do. 

17. At this juncture and quite out of the blue, the plaintiff referred to Mr. Cheng’s inability to produce the tenancy agreements in respect of B1 and B2 and said he would not complete without the tenancy agreements.  On further cross examination, he said he would have completed if the defendant had shown him the tenancy agreements.  When asked why his solicitors had never demanded the defendant to provide a copy of the tenancy agreements, he said he had privately spoken to Mr. Cheng and indicated that he would complete if the latter could produce the tenancy agreements.  That is to say, he would complete the purchase of B1 and B2 with the tenancies instead of vacant possession.  He said he had not told his solicitors about this oral agreement between him and Mr. Cheng, hence the absence of any reference to such agreement in his witness statement.  He dodged Mr. Wong’s question as to why he had to conceal the oral agreement from his solicitors.  When pressed for an answer, he simply declined to give one.

18. The plaintiff’s story expanded further when he explained the contents of paragraph 9 of his witness statement which states that he proposed to the defendant (or Mr. Cheng) to postpone completion to 12 March 2010 without mentioning the latter’s response.  He said he met Mr. Cheng face to face that day when the latter agreed to postpone completion to 12 March 2010 and his solicitor was notified of such agreement.  His attention was then drawn to TPY’s letter to TT dated 24 February 2010 proposing to postpone completion to 12 March 2010 without making any reference to the oral agreement.  The plaintiff first responded by attributing this to his solicitor’s fault.  Moments later, he said Mr. Cheng went back on his words on 26 February 2010 and insisted on extra payment in return for postponement of completion.  His attention was then drawn to TT’s letter of 25 February 2010 recording the defendant’s refusal to postpone completion and he had no answer to Mr. Wong’s question why he did not instruct his solicitors to write in reply to record the oral agreement to postpone and to point out the defendant’s failure to honour the same. 

19. As cross examination progressed into the afternoon on the first day of trial, the plaintiff’s answers saw further twists and turns.  When asked as to how Mr. Cheng asked for extra payment in return for postponement as alleged in paragraph 10 of his witness statement, the plaintiff first said Mr. Cheng had over a telephone conversation on 26 February 2010 demanded extra payment in return for postponement to 12 March 2010 while he counter-demanded vacant possession on 12 March 2010.  He then changed the timeline to 23 February 2010 and said on that day he had asked Mr. Lee to tell Mr. Cheng that he wanted to postpone completion to 12 March 2010.  In response, Mr. Cheng demanded $40,000 in return.  He then wrote out a cheque for $40,000 and asked Mr. Lee to deliver the same to Mr. Cheng, who however changed his mind and asked for another $20,000.  Mr. Lee then returned the cheque to him saying that Mr. Cheng required the extra sum of $60,000 to be handled through solicitors at the time of completion on 12 March 2010.  On 12 March 2010, he and Mr. Lee went to Mr. Cheng’s office to complete the sale and purchase but Mr. Cheng again changed his heart and would not complete even if another $100,000 was paid but he refused to indicate how much more he wanted from the plaintiff.  He did not seem to recall having told the court that Mr. Lee returned his cheque to him because Mr. Cheng required the extra payment to be handled through solicitors so that the parties should not have to meet on 12 March 2010 for completion.

20. When he was reminded that he had told the court earlier on that he met Mr. Cheng face to face at the latter’s office on 23 February 2010 instead of communicating through Mr. Lee, the plaintiff qualified his earlier answer and said that he was only referring to what happened in the afternoon of 23 February 2010 and that he had in fact visited Mr. Cheng at the latter’s office first thing in the morning of the same day.  He then gave an account of the conversation with Mr. Cheng which was practically a repetition of paragraph 7 of his witness statement regarding the conversation between the two on 10 January 2010.  One wonders if he was confused about the timeline or if he was simply making up a story along the way.

21. When Mr. Wong led him through the correspondence between the solicitors after 26 February 2010 which hardly accord with his story, the plaintiff conveniently said his solicitors had no knowledge of his dealings with Mr. Cheng which were conducted through an estate agent.  He even went so far as to deny knowledge of his deposits having been forfeited on 26 February 2010.

22. The plaintiff’s evidence on re-examination by his counsel Mr. Jeffrey Tse only serves to beg more questions than answers.  He first took a step back and said he would not necessarily complete the purchase even if the tenancy agreements were produced and would only decide after considering the same.  As to why completion had to be postponed if he had gathered sufficient fund by 26 February 2010, he attributed this to the defendant’s inability to either tender vacant possession or produce the tenancy agreements on that date and the postponement was meant for the defendant to evict the tenants by 12 March 2010.  When asked about his visit to Mr. Cheng’s office on 12 March 2010, he repeated his allegation about Mr. Cheng changing his mind and refusing to complete without saying anything about eviction of tenants. 

The defendant’s evidence

23. Mr. Cheng is the only factual witness of the Defendant.  In his witness statement, he says he is/was the manager of the defendant.  He maintains that B1 and B2 had never been rented out and the plaintiff had never requested to visit and inspect the two units before the date of completion.  He denies having received any telephone call from the plaintiff on the date of completion or having informed the plaintiff of the existence of tenancies as alleged by the plaintiff.  He further denies the defendant was unable to deliver vacant possession of B1 and B2 on the date of completion.

24. In his oral evidence, Mr. Cheng said he handled almost everything for the defendant company which was owed by his niece, including the defendant’s purchase of landed properties.  Given his role in the defendant company, he sounded like referring to his own company and properties when in fact referring to those of the defendant company.  Despite Mr. Tse’s query, however, there is no evidence which points to the defendant company being owed by Mr. Cheng. 

25. In cross examination, Mr. Cheng refuted the plaintiff’s allegation about his inspection of B1 and B2.  He said the units were used for storage of the defendant’s goods and miscellaneous items and the wooden doors thereto were normally closed so that one could not view the inside from outside.

26. Regarding his previous dealings with the plaintiff, Mr. Cheng revealed the sale of his own unit on 9th Floor of the same building to the plaintiff about 8 months before 26 February 2010.  The sale and purchase agreement of his own unit was signed a few days before the signing of the Agreements.  He first came to know the plaintiff when handling these transactions. 

27. Mr. Cheng said it was the plaintiff who asked for postponement of the original date of completion to March 2009 on grounds of financial difficulty and the defendant had agreed on condition that the plaintiff pay outgoings like government rent and rates in the meantime.  When the plaintiff asked for further postponement, the defendant required the same to be handled by solicitors, hence the Supplemental Agreements.  He denied having indicated any intention to rent out B1 and B2 pending completion when signing the Supplemental Agreements in March 2009.

28. Despite the lack of direct evidence from the plaintiff, Mr. Tse cross-examined Mr. Cheng on how the defendant managed to vacate B1 and B2 on or before 26 February 2010. Suffice it to say Mr. Cheng gave details which Mr. Tse could hardly challenge.

29. As to the plaintiff’s allegations about the contacts made with and the information gathered from him in the run up to 26 February 2010, Mr. Cheng denied all such allegations save that Mr. Lee did call him on 23 February 2010 to say the plaintiff wished to postpone completion to 12 March 2010 but he refused downright and warned about forfeiture of the plaintiff’s deposits in case of his failure to complete.  He categorically denied having agreed to postpone completion on condition of extra payment or having communicated with the plaintiff either directly or through Mr. Lee between 26 February 2010 and 12 March 2010.   

Discussion

30. The only issue here is whether the defendant failed to deliver vacant possession on 26 February 2010.  To determine this issue, one has to first decide two sub-issues, namely, (i) whether Mr. Lee had on 26 February 2010 inspected B1 and B2 and found the same to be occupied by tenants without any indication that the tenants were moving out; and (ii) whether on the same day Mr. Cheng had admitted to the plaintiff over the phone that the defendant was unable to deliver vacant possession due to the existing tenancies.

31. The court only occasionally feels able to rule against a plaintiff purely upon canvassing his pleadings and oral evidence.  This is one such occasion.

32. First, I highlight the following inconsistencies between the pleaded case and the witness statement of the plaintiff:

(i)  In the pleaded case, Mr. Lee is said to have happened to be posting advertisements for sale of other properties on the same floor of B1 and B2 on or about 26 February 2010 when he observed the state of occupancy of B1 and B2.  In the plaintiff’s witness statement, Mr. Lee is said to have been instructed by the plaintiff to inspect B1 and B2 given the plaintiff’s doubt about the defendant’s ability to deliver vacant possession on completion date.

(ii)  In the pleaded case, the plaintiff appears to have first come to know about the existence of tenancies in B1 and B2 on 26 February 2010 when Mr. Lee informed him of his observation about the state of occupancy of B1 and B2 which prompted him to telephone Mr. Cheng who then confirmed the existence of tenancies and disclosed the rentals being paid by the tenants.  In the plaintiff’s witness statement, the plaintiff says he was told about the existence of tenancies as early as 10 January 2010 and that in mid February 2010 he personally conducted inspection of the two units and the result thereof prompted him to ask the defendant for the tenancy agreements on 23 February 2010.

(iii)  In his pleaded case, Mr. Lee’s information prompted the plaintiff to contact the defendant who admitted to be unable to deliver vacant possession by reason of the tenancies. In his witness statement, the plaintiff does not say a word about the conversation between him and someone from the defendant company. 

33. Given the inconsistencies between the pleaded case and the witness statement, it was most surprising for the plaintiff to simply adopt his witness statement as his evidence in chief without attempting in any way to clarify the position. Indeed, the plaintiff had not even sought leave to amplify his evidence on the alleged admission by Mr. Cheng on 26 February 2010 which forms an integral part of his pleaded case that the defendant had failed to deliver vacant possession. Insofar as the alleged admission by the defendant of its inability to deliver vacant possession is concerned, the plaintiff’s case therefore fails in the limelight as the plaintiff has simply adduced no evidence whatsoever to prove his pleaded case in this regard.

34. As regards the state of occupancy of B1 and B2 on 26 February 2010, as the plaintiff did not call Mr. Lee to give evidence, all the plaintiff had offered by way of evidence was the hearsay from Mr. Lee.  I need not highlight the want of particulars in the plaintiff’s case as to what might have led Mr. Lee to think the tenants of B1 and B2, if any, were not moving out.  The hearsay evidence of the plaintiff simply is no comparison to the direct evidence from Mr. Cheng regarding the state of occupancy of B1 and B2 which by and large went unchallenged.  I have no hesitation in preferring the defendant’s direct evidence in this regard.

35. The plaintiff therefore fails to prove either of the sub-issues and his claim must fail even without regard to his oral evidence given under cross examination which need only be stated to reveal its lack of credibility.  To do justice to the plaintiff, I have canvassed his testimony in some detail and do not propose to repeat the same save to highlight the allegations about the oral agreement with Mr. Cheng for postponement of completion to 12 March 2010.  For one thing, this forms no part of the plaintiff’s pleaded case which is premised on the defendant’s failure to deliver vacant possession on 26 February 2010 and should therefore be taken out of account in the final resolution of the present dispute.  At any rate, the plaintiff’s story is full of inconsistencies and bears every characteristic of recent inventions.  I would not repeat how the plaintiff changed his evidence on the communication with Mr. Cheng on 23 February 2010.  Nor do I need to repeat the plaintiff’s inability to give credible reason for keeping his solicitors in the dark.  The Plaintiff’s allegation about his attendance at Mr. Cheng’s office to effect completion on 12 March 2010 only serves to betray his ignorance about the proper conveyance practice in Hong Kong and is in any event inconsistent with his own story about Mr. Cheng requiring the involvement of solicitors in handling completion on 12 March 2010.  Suffice it to say I find the plaintiff’s story about the oral agreement to postpone totally incredible.  I need not burden this judgment with an analysis of whether there was any legally binding variation of the Agreements and Supplemental Agreements.  

36. As the correspondence between TPY and TT in the run up to 26 February 2010 shows, apart from the plaintiff’s proposal on 23 February 2010 to postpone completion which the defendant flatly rejected, the parties were clearly moving towards completion on 26 February 2010.  The return of title deeds and documents by TPY to TT on 1 March 2010 further contradicts the plaintiff’s story about completion having been put off to 12 March 2010.   

37. On the other hand, I find the evidence of Mr. Cheng straightforward and credible.  For the present purpose, the crucial parts of his evidence relate to the approach by Mr. Lee on the plaintiff’s behalf on 23 February 2010 to propose further postponement of completion; the absence of any further communication, not to mention oral agreement, between the parties in the run up to 26 February 2010; and the defendant’s readiness for delivery of vacant possession.  I accept his evidence in these regards without hesitation and in preference to that of the plaintiff where they conflict with each other. 

38. As a closing note, I would say the plaintiff’s evidence had become so incredible that Mr. Tse did not feel able to invite this court to find the plaintiff’s case to be more credible than that of the defendant.  All he could do was to attempt to attack the credibility of Mr. Cheng by reference to what he described as the latter’s attempt to conceal his role in the defendant company and the history of his dealings with the plaintiff; and his answer during cross examination on whether there were carton boxes inside B1 and B2 shortly before 26 February 2010.  Suffice it to say the plaintiff’s case would not be salvaged even if Mr. Cheng had been less than truthful in these matters.  The plaintiff’s case remains one of failure.  

Conclusion

39. The plaintiff having failed to prove his case against the defendant, his claim is dismissed.

40. By its counterclaim, the defendant has sought various declarations including a declaration that the plaintiff is liable to pay the defendant the deficiency in price in the subsequent resale of B1 and B2 and all expenses incidental upon the resale of the same.  The defendant further seeks general damages.  However, the defendant has adduced no evidence on either the resale of B1 and B2 or any damages arising therefrom or otherwise.  Nor has Mr. Wong pressed for such relief on the defendant’s behalf.  I shall therefore grant only the usual declarations.

41. The order I make is as follows: -

(1)  The plaintiff’s claim is dismissed;

(2)  A declaration that the plaintiff has repudiated the Agreements and Supplemental Agreements, which repudiation was accepted by the defendant on 26 February 2010; and

(3)  A declaration that the defendant is entitled to forfeit the deposits in the sum of $219,605.10 in respect of B1 and $229,853.30 in respect of B2.

42. I make an order nisi thatthe plaintiff do pay the defendant its costs of the action and the counterclaim, to be taxed if not agreed with a certificate for counsel.  The order nisi shall become absolute unless an application is made for variation of the same within 14 days from the date of judgment.