DYNASTY TARGET DEVELOPMENT LTD v. AIBO INVESTMENT (CHINA) LTD

DCCJ 462/ 2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 462 OF 2005

____________________

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RULING ON PLAINTIFF’S SUMMONS:
FOR SUMMARY JUDGMENT
FOR INTERLOCUTORY JUDGMENT
FOR INTERIM PAYMENT
FOR STRIKING OUT PLEADINGS
AND
RULING ON DEFENDANT’S SUMMONS:
FOR STRIKING OUT PLEADINGS

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Introduction

1.  The plaintiff as purchaser and the defendant as vendor entered into a sale and purchase agreement for a real property.  Before completion the plaintiff raised some requisitions, one of which was to obtain original title deeds, another was to obtain some documents.  Unfortunately the defendant had lost some of the original title deeds prior to the present transaction.  The defendant’s solicitors replied that they would send over a draft statutory declaration explaining the circumstances of loss for the plaintiff’s approval before the defendant signed.  Those other documents would be sent over in due course.  The plaintiff rescinded the agreement on the ground that the defendant failed to prove good title.  The defendant alleged a right to forfeit the plaintiff’s deposit.  The plaintiff claimed the return of deposit and other reliefs.  The defendant counterclaimed a declaration for a right to forfeit the deposit and other reliefs.

The crux of the plaintiff’s summons

2.  The plaintiff took out a summons under O. 14 r. 1 (for summary judgment), O. 29 r. 11 (for interim payment of damages), and O. 18 r. 19 (for striking out the defendant’s pleadings) of the Rules of the District Court for the return of deposit and other reliefs. 

The crux of the defendant’s summons

3.  The defendant took out a summons under 18 r. 19 (for striking out the plaintiff’s pleadings) of the Rules of the District Court. 

The issues

4. This Court has to decide whether the plaintiff had rightfully rescinded the Agreement on the ground that, despite the absence of a fixed completion date, the defendant had evinced a clear intention not to perform the agreement on the agreed terms, thus depriving the plaintiff of the bargain. 

The agreements between the parties

4. By a provisional agreement dated 20 November 2004 made between the plaintiff as the purchaser and the defendant as the vendor, the defendant agreed to sell and the plaintiff agreed to buy the property known as Unit D, 12^th Floor including the Roof, Victorious Factory Building, Nos. 33A – 37A Tseuk Luk Street, and Nos. 16 – 20 Sam Chuk Street, Kowloon, Hong Kong (“the Property”) at the price of $2,220,000.

5. Upon the signing of and pursuant to the terms of the said provisional agreement, the plaintiff paid the defendant deposit in the sum of $222,000 by way of a cheque made payable to the defendant’s solicitors, namely Messrs. Tam & Partners, as stakeholder.  Pursuant to the said provisional agreement, the plaintiff and the defendant entered into a formal agreement dated 10 December 2004 (“the Agreement”).

Terms relevant to the present summonses

6. The Agreement contained, inter alia, the following express terms:

(a)	The said deposit of $222,000 paid to the defendant’s solicitors as stakeholder should not be released to the defendant unless it was proved to the satisfaction of the plaintiff’s solicitors that the balance of the purchase price was sufficient to discharge the existing charge in respect of the Property;
(b)	$1,998,000 as balance of the purchase price should be paid upon completion;
(c)	Completion should take place on or before 5p.m. on 31 December 2004;
(d)	Should the defendant fail to complete the sale in accordance with the terms and conditions contained in the Agreement, the said deposit should be returned to the plaintiff but without prejudice to the right of the plaintiff to recover from the defendant such further damages which the plaintiff might sustain by reason of the failure on the part of the defendant to complete the sale;
(e)	The defendant should give a good title to the Property. The defendant should show and prove a good title to the Property at the defendant’s own expense in accordance with section 13 of the Conveyancing and Property Ordinance, Cap. 219 (“the Ordinance”) and should at the like expenses make and furnish to the plaintiff such certified copies of any deeds or documents of title wills and matters of public record as might be necessary to complete such title provided that in this respect it should be sufficient, if any document which did not relate exclusively to the Property was not in the possession of the defendant, for the defendant to furnish to the plaintiff a photocopy of such document and completion should take place at the time and in the manner as provided in the Agreement if the defendant or the defendant’s solicitors undertook to furnish the plaintiff with a certified copy of such document in any event within 45 days from the date of completion [Clause 12(a)];
(f)	Time should in every respect be of the essence of the Agreement.

7. Clause 13(b) read:

If the Purchaser shall make and insist on any objection or requisition either as to title or any matter appearing on the title deeds or otherwise which the Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with, the Vendor shall … be at liberty on giving to the Purchase or Purchaser’s solicitors not less than 5 working days’ notice in writing to annul the sale, …, the Purchaser being in that event entitled to the return of all deposits and other moneys paid hereunder but without costs or compensation.

Section 13 of the Conveyancing and Property Ordinance

8. Section 13 of the Ordinance reads:

(1)	Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor, as proof of title to that land, only production of the Government lease relating to the land sold and –
	(a)	proof of title to that land –
		(i)	where the grant of the Government lease was less than 15 years before the contract of sale of that land, extending for the period since that grant; or
		(ii)	in any other case, extending not less than 15 years before the contract of sale of that land commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest in that land;
			…
	(b)	production of any power of attorney under which any document produced is executed where that document was executed less than 15 years before the contract of sale of that land.
(2)	Where this section requires the production of any document, it shall be sufficient to produce a copy –
	(a)	attested, before 1 November 1984, by 2 solicitors’ clerks; or
	(b)	certified by a public officer or a solicitor, to be a true copy.
			…
(4A)	Where any document is or has been produced by a vendor as proof of title to any land and that document purports to have been executed, not less than 15 years before the contract of sale of that land, under a power of attorney, it shall for the purposes of any question as to the title to that land be conclusively presumed –
	(a)	as between the parties to that contract; and
	(b)	in favour of the purchaser under that contract as against any other person, that the power of attorney –
		(i)	was validly executed;
		(ii)	was in force at the time of the execution of that document; and validly authorized the execution of that document.

The plaintiff’s requisitions

9. On 28 December 2004, the plaintiff’s solicitors, Y.T. Wong & Co. (“YTW”), wrote (BE 127-129) to the defendant’s solicitors, Tam & Partners (“TP”), to raise 3 requisitions:

(1)	The request for certified copy of a power of attorney executed for and on behalf of the preceding vendor’s mortgagee bank, and the letter of Confirmation of Validity, if applicable;
(2)	The request for originals of various title deeds, and certified copies of others, as the case might be;
(3)	The request for receipts of government rent and rates.

10. On 3 January 2005, YTW repeated the request for receipts of government rent and rates (BE 133).   

11. On either “31 December 2004” or “3 January 2005” (the exact date being in dispute but has no bearing on the present summonses), YTW received TP’s letter dated 30 December 2004 (BE 155-156).  TP agreed to provide the power of attorney papers and the receipts of government rent and rates “in due course”.  The plaintiff complained about the timing being “in due course”.  (I do not see any significance in this complaint because it was clear, and Mr. Hung for the plaintiff does not seek to argue otherwise, that the letter of 3 January 2005 would indicate that the completion had to be rescheduled to a date yet to be fixed.) 

12. TP, however, indicated that the following documents, inter alia, would not be made available on the ground that they were not relevant to the proof of title and, in any event, the defendant had lost them:

(a)	Original of assignment dated 8 March 1994 (Mem. No. 5963046);
(b)	Original of assignment dated 9 September 1997 (Mem. No. 7287304).

13. Together with the letter, TP sent a draft statutory declaration (BE 157-161) in the name of Wong Wai Chung, a director of the defendant, explaining the loss and missing of, inter alia, the 2 said title deeds, “for [YTW’s] approval”. 

The instance of the plaintiff’s rescission

14. On 4 January 2005, YTW wrote (BE 140-141) to TP alleging that the vendor had failed to prove a good title to the Property at its own expense.  YTW treated this as wrongful repudiation of the Agreement and the plaintiff rescinded the Agreement.  YTW asked for the return of $220,000 deposit and possibly damages. 

15. On 5 January 2005, TP wrote (BE 143-144) to YTW forfeiting the purchaser’s deposit. 

16. On 10 January 2005, TP wrote (BE 145-146) to YTW on a without prejudice basis and expressly despite the fact of forfeiture, to ask YTW for approval of title pending completion. 

17. On 13 January 2005, YTW wrote (BE 147-148) to refuse the proposal because the Agreement had already been rescinded. 

18. On 21 September 2005, TP wrote (BE 153) to YTW to state that after forfeiture of the deposit, it [TP] was no longer a stakeholder.     

The exact terms of the plaintiff’s summons

19. On 30 June 2005, the plaintiff took out a summons under O. 14 r. 1 (for summary judgment), O. 29 r. 11 (for interim payment of damages), and O. 18 r. 19 (for striking out pleadings) of the Rules of the District Court for an order that:

(A)	(1)	The return of the deposit of $222,000;
	(2)	Conveyancing costs and disbursements in the total sum of $6,807;
	(3)	A declaration that the plaintiff has a lien on the Property for the deposit in the sum of $222,000, the conveyancing costs and disbursements in the total sum of $6,807d the damages in respect of their loss of bargain;
	(4)	Interest;
	(5)	Costs.
(B)	(1)	Interlocutory judgment in this action against the defendant for breach of contract;
	(2)	The return of the deposit of $222,000.
(C)	Further or alternatively, for an order that the defendant do pay the plaintiff the sum of $222,000 or such sum as the Court thinks just by way of interim payment under O. 29 r. 11 of RDC;
(D)	(1)	Further or alternatively, an order that the amended Defence and Counterclaim be struck out under O. 18 r 19 of RDC on the grounds that the same is scandalous frivolous vexatious or an abuse of the process of the Court;
	(2)	Alternatively, paragraphs 40(2), (3) and 40A of the Amended Defence and Counterclaim be struck out under O. 18 r 19 of RDC on the grounds that the same is scandalous frivolous vexatious or an abuse of the process of the Court;
	(3)	Costs.

The exact terms of the defendant’s summons

20. On 17 September 2005, the defendant took out a summons under O. 18 r. 19 of RDC (for striking out pleadings) for an order that:

(1)	The plaintiff’s claim for a court declaration that the plaintiff has a lien on the Property for the deposit in the sum of $222,000, the conveyancing costs and disbursement in the total sum of $6,807 and the damages in respect of their loss of bargain as pleaded in paragraph 3A of the Re-Amended Statement of Claim filed herein on 18 April 2005 be struck out on the ground that –
	(a)	It discloses no cause of action;
	(b)	It is scandalous, frivolous vexatious; and/or
	(c)	It is an abuse of the process of the Court; and
(2)	Costs of this application on indemnity basis be made to the defendant by the plaintiff and the plaintiff’s solicitors.

Findings on the plaintiff’s summonses

21. The plaintiff’s case is that the TP’s letter dated 30 December 2004 (BE 131-132) evinced an intention not to perform his obligations under the contract in some essential respect (see Chitty on Contract, 29^th ed., 2004, para. 24-108). The plaintiff had raised requisition to request for, inter alia, the originals of the following title deeds:

(a)	Original of assignment dated 8 March 1994 (Mem. No. 5963046);
(b)	Original of assignment dated 9 September 1997 (Mem. No. 7287304).

22. In the said letter, TP expressly refused to produce the 2 said documents on the ground that they were not required by law.  As the defendant had lost the original title deeds prior to the present transaction, TP enclosed a draft statutory declaration explaining the circumstances of loss for the plaintiff’s approval before the defendant signed.

23. The plaintiff’s case is that it was entitled to have the original title deeds by law and by under the Agreement.  Its bargain was for a good title free from all adverse interest and there were obvious and real risks attendant upon missing title deeds.  The defendant’s case is that it was entitled to provide only secondary evidence if the same was sufficiently clear and cogent.  It expressly intended to use a statutory declaration as secondary evidence to give as good a title despite the missing of title deeds. 

The problems with the defendant’s draft statutory declaration

24. Statutory declarations were often held to be sufficient secondary evidence for proof of a good title but in some cases, they were held otherwise for not having been properly made.  A case in point was Yiu Ping Fong v Lam Lai Hing [1999] 1 HKLRD 793 where Yuen J. (as she then was) ruled that a power of attorney could not be used for lack of proper notorization.  In our present case, counsel for the defendant accepts that a draft could not be regarded as evidence because the production in its executed form remained a mere possibility.  

25. Moreover, under the Agreement, and counsel for the defendant also accepts that, the plaintiff had no duty to approve any such draft statutory declaration.  Further, under clause 12(a), it was the defendant’s duty to prove a good title. Duty wise, the plaintiff has no duty to approve the draft to facilitate the defendant in discharging this duty.  Knowledge wise, the draft statutory declaration dealt with past facts which the plaintiff could not possibly have any knowledge.  Nevertheless, the defendant’s proof of title was said to be dependent on the precondition of the plaintiff’s approval, and, as aforesaid, the mere possibility of the approved draft being executed in time. 

26. In my view, despite the absence as yet of a fixed completion date, TP’s letter had evinced a clear intention on the part of the defendant not to perform its obligations under the Agreement in this essential duty of proof of a good title.  Counsel for the defendant has not submitted, nor do I think it just, that plaintiff should first fix a completion date and then speculate whether a clear and cogent executed statutory declaration would eventually arrive in time.  The plaintiff was entitled to rescind instantly based on a clear stance expressed by the defendant.         

27. The defendant has failed to show any triable issues that the plaintiff had not rightfully rescinded the Agreement for the defendant’s failure to answer the requisition satisfactorily. 

28. Counsel for the defendant submits in the alternative that even if the draft had failed to convince the plaintiff of a good title, the defendant was entitled to fall back on clause 13 of the Agreement, which would allow the vendor to annul the sale and return the deposit to the plaintiff.  This is an attractive submission but it has no place here because the defendant has never, whether on the pleadings or its correspondences, relied on this clause.  The defendant’s stance has been consistent in that the draft, together with the relevant certified copies, had satisfactorily answered the plaintiff’s requisitions and the plaintiff was not entitled to anything else.  I therefore reject this submission. 

Summary judgment

29. The defendant has failed to show any triable issues.  I give judgment to the plaintiff, for the return of deposit in the sum of $222,000, conveyancing costs and disbursements in the total sum of $6,807, respectively under para. (A)(1) and (2) of the plaintiff’s summons. 

30. In regard to the plaintiff purchaser’s lien, the defendant’s counsel relies on the case on Combe v Swaythling [1947] Ch. 625 for the proposition that the purchaser could set up no lien where the deposit was held by a stakeholder.  He argues that TP had remained a stakeholder despite having forfeited (BE 145-146, 153) the deposit in favour of the defendant and announced that TP was no longer the stakeholder.  He suggests that the plaintiff should sue TP by joining TP as a co-defendant where TP had not taken out an interpleader summons to remain neutral.   I have no doubt that Combe v Swaythling is the guiding authority.  But I do not agree with counsel’s submission that TP could remain a stakeholder after forfeiture of the plaintiff’s deposit.  The defendant has failed to show any triable issues on the plaintiff purchaser’s lien over the Property.  I give judgment to the plaintiff under para. (A)(3) of the plaintiff’s summons.

31. I also give judgment on interest and costs to the plaintiff under para. (A)(4) and (5) of the plaintiff’s summons.

Interlocutory judgment

32. It follows from the above that judgment should be given to the plaintiff under para. (B)(1) and (2). 

Interim payment

33. It follows from the above that judgment should be given to the plaintiff under para. (C)(1) and (2). 

Striking out the defendant’s pleadings

34. The defendant’s pleaded case is that the plaintiff had to mitigate loss by continuing with the Agreement despite the forfeiture of deposit.  In TP’s letter dated 10 January 2005 (BE 145- 146) proposing this course, the defendant had maintained its stance of not providing the plaintiff with the 2 said title deeds.  It would not be a reasonable step to mitigate loss because the plaintiff had to sacrifice the requirement for the 2 said title deeds. 

35. It is difficult to understand what the defendant meant when the letter was expressly marked “without prejudice” to the forfeiture.  It did not say whether the plaintiff could rely on the forfeited deposit as fresh deposit.  It is not clear what status of the deposit then was.  Everything seemed to hinge upon the discretion of the defendant.  The defendant does not have a strong case to argue that it would be unreasonable for the plaintiff to refuse such a nebulous proposal.         

36. Be that as it may, I do not see how any part of, in particular paras. 40(2), (3) and 40A, of the Amended Defence and Counterclaim is scandalous, frivolous or vexatious or an abuse of the process of the Court.  I dismiss the plaintiff’s application under para. (D)(1), (2), and (3). 

The defendant’s summons

37. It follows from the above that the defendant’s summons should be dismissed in full. 

Costs

38. There is no apparent reason not to grant costs following events.  I grant costs to the plaintiff on both summonses, with certificate for counsel.  

Dated this 4 November 2005