XCHRX CHUNG KWOK FONG v. LUK NGAI LING IRENE

HCA 6020/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6020 OF 2000

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D E C I S I O N

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Appeal

1. This is an appeal by the Defendant against the order of Master Yuen made on 2 January 2001 in an O.14 application, granting the Defendant leave to defend this action on condition that she pays a sum of HK$406,400 into Court. On this appeal, the Defendant asks for unconditional leave to defend.

Background

2. The Defendant was the developer of a village estate named Hong Lok Kui comprising several blocks of small exempted houses for indigenous villages commonly known as "丁屋" ("Ting House"). This action relates to an agreement ("the Agreement") made between the Defendant and the Plaintiff on or about 24 October 1995 for the sale and purchase of a property known as Block E, 1st Floor, Hong Lok Kui, Lot No.819E in Demarcation District No.7, Wai Tau Tsuen, Tai Po, New Territories, Hong Kong ("the Property"). On 18 November 1993, the Defendant as vendor entered into a Chinese written agreement ("the Original Agreement") with one Mr Chui Kei Kou ("Mr Chui") as purchaser for the sale and purchase of the Property. On the same day, she as vendor entered into another Chinese written agreement ("the Lowe Agreement") with one Mr Lowe Chi To ("Mr Lowe") for the sale and purchase of a property known as Block F, 1st Floor, Hong Lok Kui, Lot No.819RP in Demarcation District No.7, Wai Tau Tsuen, Tai Po, New Territories, Hong Kong. The two properties were to situate within two blocks in the village estate. The Original Agreement and the Lowe Agreement were in a standard form and contained materially identical terms. Under both agreements, it was expressly provided that if the property was not completed by 31 December 1995 the purchaser could take back all deposits with bank interest.

3. On or about 24 October 1995, through the introduction of Mr Lowe and with the consent of the Defendant, the Plaintiff replaced Mr Chui as the purchaser of the Property. The Plaintiff paid a transfer fee of $30,000 to Mr Chui and a handling fee of $5,000 to the Defendant. The Original Agreement was apparently cancelled and a new Chinese written agreement ("the Written Agreement") was signed between the Defendant as owner and the Plaintiff as purchaser for the sale and purchase of the Property at the price of $1,238,000. The Written Agreement does not contain any term as to the date of completion.

4. There is no dispute that the Plaintiff had paid a total deposit of $371,400 (i.e. 30% of the purchase price) by 18 November 1996, and together with the transfer fee and handling fee has made a total payment of $406,400 towards the purchase of the Property.

5. There is also no dispute that the Defendant has not yet commenced building the Property. On 29 September 1998, Mr Lowe commenced an action (HCA 10036/98) against the Defendant for breach of the Lowe Agreement. The action was subsequently settled. Apparently, the Defendant returned the deposit to Mr Lowe. Seeing that no progress had been made in the construction of the Property, the Plaintiff demanded from the Defendant the return of his deposit in 1999. The Writ was subsequently issued on 15 June 2000.

Plaintiff's Case

6. In this action, the Plaintiff alleges that the Defendant orally agreed with him on or about 24 October 1995 as follows:

(i) the Property would be completed on or before 31 December 1996;

(ii) if the Property was not completed on 31 December 1996, the Plaintiff would be entitled to take back the entire deposit and interest thereon at the lending rate of the bank(s) ("the Oral Term").

The Plaintiff alleges that the Oral Term constitutes an express term of the Agreement, a collateral agreement to the Agreement and/or a representation of the Defendant in making the Agreement. It is alleged that the Defendant, by failing to complete the Property by 31 December 1996, has been in breach of the Agreement and/or the collateral agreement, and/or has rendered the representation untrue.

7. Secondly, the Plaintiff alleges that it is implied in the Agreement that the Defendant shall complete the Property with reasonable diligence and within a reasonable time ("the Implied Term") and that the Defendant, by failing to exercise reasonable diligence to complete the Property within a reasonable time, has been in breach of the Implied Term. The Plaintiff claims to have effectively rescinded the Agreement and for loss and damage including the sum $406,400.

Defendant's Case

8. The Defendant denies the Oral Term and says that she has exercised reasonable diligence in completing the construction of the Property. She alleges that no date for completion of the Property has been fixed or provided for in the Agreement, and that she has tried her best to complete the Property albeit she has failed to do so after 7 years. It would appear that the Defendant does not dispute the existence of the Implied Term.

Issues

9. There are thus two main factual disputes between the parties, namely:

(i) whether the Defendant had orally agreed and/or represented to the Plaintiff that the construction of the Property would be completed on or before 31 December 1996; and

(ii) whether the Defendant had exercised reasonable diligence to complete the Property within a reasonable time.

Oral Term

10. It is not in dispute between the parties that Mr Chui and Mr Lowe were present when the Agreement was made. There is however an acute conflict as to fact between the Plaintiff and the Defendant as to whether the Oral Term was made. According to the Defendant, there was a material change in the approval period for "Ting House" applications between 1993 and 1995. In 1995, because of the large number of applications, the approval period had been substantially prolonged. She therefore explained to the Plaintiff on 24 October 1995 that the relevant approval for building the Property was still pending, that it was impossible to convey the Property in 1995 and that she had difficulty in promising a completion date. She told the Plaintiff that no date of completion would be included in the Agreement and that the Plaintiff might have to wait for a long time to have the Property conveyed to him if he insisted on purchasing the Property at that time. The Plaintiff, according to the Defendant, insisted on the purchase so as to avoid paying a higher price in a rising market.

11. The Plaintiff noted that no completion date was stipulated in the Written Agreement before he signed it, but was assured by the Defendant that the Property and indeed the entire village estate would be completed on or before 31 December 1996, and that should the Property be uncompleted by that date he could get back all the money he had paid plus interest at bank rate. According to the Plaintiff, the assurance was made in the presence of Mr Lowe who was also led to believe that the whole project would be completed on or before 31 December 1996.

12. At the hearing, Mr Kwan appearing for the Plaintiff submits that the Defendant's case is totally nonsensical and relies on the following:

(1) Mr Lowe and Mr Chui were at liberty to take their deposits back if their properties were not completed by 31 December 1995.

(2) They would have taken their deposits back if the Defendant's case were true as no reasonable man would be willing to accept substantial delay and to wait endlessly with no fixed date for completion.

(3) It would be even more unbelievable that the Plaintiff had to incur the extra transfer fee and handling fee totally $35,000 to release Mr Chui from waiting endlessly.

(4) It would also be dubious that Mr Lowe chose to wait and had not taken any action against the Defendant until almost the end of 1998.

(5) The Plaintiff's case is supported by the payment schedule provided for in the Written Agreement.

(6) The only conclusion is that the Defendant has repeatedly dragged on and led the Plaintiff and Mr Lowe to believe that their properties would be completed within a fixed date, that is to say, the end of 1996 and then very soon thereafter.

(7) The above conclusion would be even more cogent if the progress of the construction of the Property is closely scrutinized.

13. On the other hand, Mr Cheng appearing for the Defendant argues that the Defendant's case is more believable than that of the Plaintiff and that the Plaintiff's case is unbelievable for the following reasons:

(1) Different from the Original Agreement and the Lowe Agreement, no completion date is provided for in the Written Agreement. Both Mr Chui and Mr Lowe were present when the Agreement was made. The Plaintiff did not request for the alleged date of completion to be inserted in the Written Agreement, particularly when it is alleged that the Oral Term provides for interest calculated at bank rate.

(2) The Defendant would not have agreed to the completion date when the procedure for application for approval had not come to a concrete stage. The application was still pending before the Town Planning Board in November 1995.

(3) The Plaintiff did not ask for the return of her deposit until 1999.

(4) Under the Lowe Agreement, the original date of completion (31 December 1995) remained unchanged.

Insofar as the Plaintiff relies on the Oral Term as a term of the Agreement, Mr Cheng further relies on the parol evidence rule.

14. In my view, whether the Oral Term was agreed or made is a factual issue which can only be resolved at trial. There may be good answers to Counsel's submissions particularly if Mr Lowe and Mr Chui are called as witnesses. For the reasons advanced by Mr Cheng, I am not persuaded that the Defendant's case is unbelievable. Nor should I embark upon an evaluation of the relative believability of the parties' cases as the Court should not embark on a mini trial of the action on affidavit evidence: see Godfrey JA in Ng Shou Chun v. Hung Chun San [1994] HKC 155 at 158. I am therefore not satisfied that the Defendant has no defence on this issue. As Bingham LJ puts it in Crown House Engineering v. Amec Projects Ltd (1990) 6 Const LJ 141 at 154:

"..... Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute ..... The procedure is entirely inappropriate where the Plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact ....."

It therefore remains unnecessary for me to deal with Mr Cheng's other arguments on the Oral Term. Had the Oral Term been the Plaintiff's only case, I would have allowed the appeal and granted the Defendant unconditional leave to defend. The Plaintiff however also rests his case on the Implied Term which I shall next turn to.

Implied Term

15. As referred to earlier, it seems that the Defendant does not dispute the implied terms of reasonable diligence and reasonable time. Mr Kwan submits that by way of necessary and obvious inference the Agreement must contain such terms. The dispute between the parties thus rests on whether the Defendant has been in breach of the Implied Term.

16. Mr Kwan submits that in more than 7 years the Defendant has virtually taken only three steps to construct the Property, namely: execution of a Power of Attorney on 25 June 1993; application to the District Lands Office on 23 June 1993 and application to the Town Planning Board on 14 November 1995. The Power of Attorney is not an irrevocable Power of Attorney and has not been registered at the Land Registry. This, Mr Kwan argues, demonstrates the lack of motivation on the part of the Defendant to develop the Property. Mr Kwan further argues that after the Defendant's first application to the District Lands Office on 23 June 1993, she had never taken any initiative to follow-up the matter other than a few moves made pursuant to the requests of the District Lands Office. Mr Kwan further submits that there was substantial delay in making the application to the Town Planning Board on 14 November 1995. No further move was made until 8 June 2000 when a new application was made to the Town Planning Board which application was swiftly approved on 25 August 2000. This, Mr Kwan argues, demonstrates the passive role and lack of motivation on the part of the Defendant to develop the Property.

17. According to the Defendant, the procedure for "Ting House" applications is complicated and lengthy. On this appeal, the Defendant filed two further affirmations exhibiting correspondence exchanged with, inter alia, the District Lands Office to show that various applications and submissions had been made to different Government Departments in order to obtain all necessary approvals for building the Property. According to a letter dated 2 February 2001 from the District Lands Office, the inaction from 1993 to 1995 was not caused by the Defendant. However, as stated in the letter, the time taken for the application was exceptionally long because the applicants failed to obtain approval from the Director of Fire Services for the Emergency Vehicular Access proposal which was one of the approval conditions imposed by the Town Planning Board.

18. Mr Kwan argues that the Defendant has failed to exercise reasonable diligence to complete the Property within a reasonable time. The land where the Property is supposed to situate is currently owned by a Tang Kwok Chor. No Power of Attorney is registered against the land. Further, the land is still occupied by some other permanent or non-permanent structures. The Defendant is a veteran village house developer. It appears that she was not familiar with various proposals that had to be submitted including the proposal for Fire Prevention and the proposal for Emergency Vehicular Access and Fire Hydrants. There is no evidence that the Defendant has enlisted the assistance of any professional.

19. Apart from exhibiting correspondence and other documents, the Defendant has not really condescended upon particulars to explain the long and substantial delay, or to show that she has exercised reasonable diligence to complete the Property within a reasonable time. As it stand, I consider that there is little substance in the defence which can be described as more than shadowy but less than probable: see Godfrey J in Unic Co. v. Centus Development Ltd [1988] HKC 643 at 648. In my view, the Master was right in granting the Defendant leave to defend on condition that she pays a sum of $406,400 into Court. I would therefore dismiss the appeal and make the following order nisi as to costs, namely, the Defendant to pay the Plaintiff the costs of this appeal.