SPEEDY RICH (ASIA) LTD. v. LEUNG PUI SHU AND ANOTHER

HCA 3623/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3623 OF 1997

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J U D G M E N T

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1. On 7 April 1997 the Plaintiffs were due to complete their purchase of a property known as Flat H, 28/F, Block 15, Laguna City from the Defendants. It appears they had not been able to inspect the premises before the completion date (and after contracts were exchanged). There is some dispute as to how this came about because there were clearly some arrangements made which fell through. The Defendant says that they failed to turn up on time. The Plaintiffs say when they did attend as arranged no one gave them access. It is not necessary for me to decide this issue of responsibility or fault as it is not material to this action, although I am inclined to accept the Plaintiffs' explanation. The Defendant's attitude to the request for inspection on completion date - which incident I will need to deal with in context and in more detail later - was a good indicator that the fault in respect of the earlier appointments lay with him or his agent. I found him in the event an unimpressive witness.

2. The purchase price was $7,000,000. Deposits totalling $700,000 had been paid about one month before completion. The agreement contained the following material stipulations:

i) The completion date was to be the 7 April or such other date as was agreed in writing (Clause 1.01).

ii) Completion was to take place prior to 1 p.m. on a weekday (other than a Saturday) at the offices of the vendors solicitors (Clause 4.01).

iii) The vendor shall permit the purchaser (or his agent) to inspect the property upon prior appointment on not more than 2 occasions:

a) once prior to completion; and

b) once upon the completion date but prior to completion for the purposes of verifying vacant possession (Clause 25).

3. On 7 April 1997 (completion date) the Plaintiffs solicitors at about 10.30 a.m. pointed out that inspection before completion had not been achieved and that inspection on completion date was required. The agreement reached between the two firms of solicitors was that completion would proceed notwithstanding the vendors' failure or unwillingness to permit inspection before completion, but that inspection would take place before 7 p.m. and the vendors' solicitors would hold the purchase monies as stakeholder until that time.

4. I shall shortly review the text of the various telephone discussions and the correspondence exchanged but for present purposes it is sufficient to state that although Mr Chan, a conveyancing clerk with the Plaintiff's solicitors, knew that in the agreement completion was provided for as "prior to 1 p.m.", he believed he had the agreement or acquiescence of Miss Yu, of the Defendant's solicitors, in completion at approximately 3 p.m. In view of the position concerning the inspection of the premises before 7 p.m. and the fact that the vendors' solicitors were to hold completion monies as stakeholders in the meantime, I can see no need for any rigid adherence to 1 p.m. as the completion time. 3 p.m. was a perfectly reasonable alternative. Given the timing of certain forms of communication I can well see the practical good sense of a 3 p.m. (or thereabouts) completion instead of 1 p.m.

5. In the event when Mr Chan turned up to complete at about 2.40 p.m. at Miss Yu's offices, he had to wait well over a hour whilst there was some behind the scenes activity in the offices of Baker & McKenzie before he was told that completion time had passed, the transaction was aborted and the Plaintiff's deposit would be forfeited. If Mr Chan was not actually distraught he was undoubtedly shocked. Sensing perhaps some problem which might be laid at his door he offered several thousand dollars as a form of incentive for completion to proceed (although he referred to it being compensation it is difficult to see how the vendor could be entitled to compensation, or what called for compensation). Nonetheless Mr Chan increased his offer to $200,000, his salary for a whole year. There is clear agreement that he made these offers. That Mr Chan was driven to such a course underlines the desperate view he took of the situation. Miss Yu, by now supported by a more senior solicitor, was adamant. "Forfeit it is" one could almost hear her exclaim, "You are too late".

6. Proceedings were commenced on the Plaintiff's behalf on 9 April 1997, two days later. An amended Statement of Claim was served on 1 September 1999. The action had been taken over by different solicitors for the Plaintiffs. Finally it has come for trial a little over three years after the events concerned. I regard that as an unacceptable delay. The overall picture which has emerged does not reflect well upon the Defendants' solicitors. That is probably an under-statement.

7. The exchanges between Mr Chan and Miss Yu now fall to be examined. Both have given evidence. Madam Yip Mei Po, of the Plaintiff company and her sister Miss Yip Mei Hoo both gave evidence. Although Madam Yip Mei Po was cross-examined at length, none of her evidence went to the material issues. The first named Defendant also gave evidence.

8. Some time before 11.05 a.m. Mr Chan had a telephone discussion with Miss Yu concerning an appointment to inspect the premises. It is clear from the evidence of Mr Leung, the first named Defendant, that he regarded the request to inspect on completion day as an irritation though given the fact that the premises were empty, the solicitors had the keys, and there was an agent in the picture, I can see no difficulty or inconvenience for anyone. Eventually the matter was resolved by an agreement to inspect after completion.

9. A letter, fax-timed at 11.05 a.m., was sent by Miss Yu to Mr Chan. Although it reviewed the abortive attempts to inspect the premises before completion date, it made no mention of any inspection on that date itself.

10. Following this Mr Chan said that there were several phone conversations with Miss Yu, during which Miss Yu said that the Defendants agreed to an inspection. The question of the time for completion was raised by Mr Chan, he suggesting that he come with the cheques and documents at about 3 p.m. when he could collect the keys to enable the inspection to be carried out. It was clear that the Defendants were not able or willing to allow an inspection before completion and so the arrangement referred to above was one which was favourable to the Defendants, the Plaintiff not having insisted on its entitlement. There was no objection by Miss Yu to Mr Chan's suggestion of timing of completion though she would take her clients instructions on the matter generally. She said words to the effect "let us do things according to the contract" which covered a multiplicity of matters including inspection of the premises before completion to ensure that there was vacant possession. In another telephone conversation with Miss Yu, she confirmed that the key would be available to inspect the premises. She did not mention any adherence to 1 p.m. at the time for completion. The impression Mr Chan received from her was that she was agreeable to his bringing over the cheques etc. and collecting the keys by 3 p.m. although he conceded that she did not expressly say "yes, 3 p.m. will be satisfactory." At some stage in some conversation late in the morning's exchanges - oral and written - she said words to the effect that he should send over the money and collect the keys.

11. At about 12.49 p.m. Miss Yu sent the letter by fax which confirmed the agreement that following completion the balance of the purchase monies would not be released to her clients until there was vacant possession delivered to the Plaintiff. The deadline for this was 7 p.m. There was reference to completion being in accordance with the Agreement for Sale and Purchase. No reference was made to 1 p.m. as being the time for completion.

12. The fax timing was only 11 minutes before 1 p.m. The proximity of the fax-timed despatch of this letter to what the Defendants have argued was the 1 p.m. deadline for completion, must have occasioned some concern because at the beginning of the trial Mr Rimsky Yuen, on behalf of the Defendants, was at pains to argue that the letter had in fact been sent by fax at 12.21. In the trial bundle the Defendants had caused to be included a fax transmission record of a letter sent to the Plaintiff's solicitors. There was an obvious problem. How could the defendants own fax timing at the top of the letter be reconciled with a 12.21 p.m. transmission? The answer advanced was that it must have been faxed twice - at 12.21 p.m. and 12.49 p.m. The Defendants' anxiety to advance this argument was of course easily explained in the curiosity of such a letter being despatched so shortly before 1 p.m. if indeed 1 p.m. was the completion time unequivocally accepted. Only when Miss Yu gave evidence, and I called for her conveyancing file, did we in fact find a transmission record for a letter at 12.48/49 which must have referred to the 12.49 fax timed letter. One could be excused at the very least for raising one's eyebrows at the failure to disclose this earlier (or certainly mention it at the time Mr Rimsky Yuen advanced the link between a transmission record for 12.21 p.m. and the 12.49 fax timed letter). This has reasonably developed into a degree of cynicism when further examination revealed that one of the earlier letters, which was a simple correction of some times referred to in an even earlier letter, had a fax timing of 12.23 p.m., itself according very closely to the transmission record of 12.21 p.m. On the Defendants' argument it does not seem logical to advance the notion of the 12.49 p.m. (faxed) letter as having been faxed before the 12.23 p.m. (faxed) letter. One thing is patently clear. There was some inconsequential faxing of letters by the Defendants' solicitors that morning none of which made any reference to the rapidly approaching 1 p.m. completion "deadline".

13. At 1.15 p.m. the Defendants' solicitors, in the form of Miss Yu faxed a letter to the Plaintiff's solicitors. Mr Chan was having lunch at the time. He was alerted to its contents about half an hour later whilst he was at lunch. It pointed out that since completion had not taken place at 1 p.m. the Defendants rescinded the agreement and forfeited the deposit of $700,000. I am not at all surprised that Mr Chan went hot and cold and experienced a sense of panic if not disbelief. Since that letter was faxed at 1.15 p.m. it must have been dictated within a minute or so of one o'clock. That as appeared from Miss Yu's evidence was a correct conclusion.

14. I now turn to Miss Yu's evidence.

15. It is important to note that her evidence was given in the context of Mr Rimsky Yuen putting to Mr Chan that although he had raised the suggestion of completion at about 3 p.m. he did not do so until after the 12.49 faxed letter. This was the first time that the Defence case had accepted that there was any suggestion by Mr Chan that completion could be at 3 p.m. There was nothing in Miss Yu's statement, served for the purposes of the action, to this effect. It came as a surprise to me as well as to Mr Kenneth Chan who appeared for the Plaintiffs. It was one of those last minute unheralded appearances on stage which gives an insight into the plot. It became crucially important to see how Miss Yu dealt with this.

16. It is not necessary to traverse the earlier contact that morning. Sometime around 12 noon she said Mr Chan telephoned her asking if he could come by at 3 p.m. to hand over the cheques (complete) and pick up the keys. She said her reply was that he should look at the agreement. He asked again and she gave the same reply. Her evidence thereafter was at least mildly astonishing. - "It seems that he could not get a 'yes' or a 'no'. It did not appear that I was under an obligation to remind him. I never took it as a formal request to complete at 3 p.m. I did not take instructions from the client about completion at 3 p.m. because there was no formal request."

17. She confirmed, in cross-examination by Mr Kenneth Chan, that she had never specifically warned Mr Chan that he had to complete by 1 p.m. - or that inspection of the premises could not be given before 1 p.m. Yet in her statement filed for the purposes of this action it is clearly stated:

"I therefore called Mr Chan at about 11.30 a.m. to suggest that the Plaintiff would tender the balance of the purchase price and the assignment on or before 1 p.m. on that day ......"

18. This, though signed by her as an accurate statement, is clearly untrue. She sought to put a gloss on it by saying that although this was not her express statement it was all implicit in her reference to the transaction being done in accordance with the agreement. Since she now concedes that Mr Chan suggested 3 p.m. as the completion time to which she did not demur, any idea of her mentioning 1 p.m. as the completion time would of course have been a travesty of the truth.

19. The consequences of her equivocal, and in my view wholly misleading stance on her own evidence, was that, despite the despatch of her last letter before 1 p.m. at an uncertain time, she must have been watching the clock with an eager tactical eye. Within minutes of the stroke of that hour she had telephoned her client for instructions. His evidence was that she contacted him whilst he was at lunch, perhaps five or six minutes after 1 p.m., no doubt via the ubiquitous mobile phone asking for instructions as to whether the deposit should be forfeited. He asked her whether he was entitled to do that, under the agreement. She told him he was. "If that's the case", he indicated "do so." She did. Given the likely length of the telephone call, the time for dictation, typing and signing of the letter and then the arrangements to send it by fax one can, without much difficulty, conjure up the picture of Miss Yu hanging over her watch or clock ready to press the button on the trap door for Mr Chan to fall into the hole.

20. While Mr Chan was waiting at the offices of Baker and McKenzie in the forlorn hope that he would be treated with civility and consideration - he was there for about two hours - Miss Yu and a solicitor colleague must have debated how to deal with him. Emerging from the exchanges between Mr Chan and Miss Yu was another inconsistency in the Defendants' version of events. According to Mr Chan, Miss Yu, when pressed by him to agree to completion at 3 p.m. said she would take her clients' instructions. According to the client, the first Defendant, it was immaterial to him whether completion was at 1 p.m. or 3 p.m. This of course did not square with his later comment that, since the 1 p.m. completion had been missed, he would forfeit the deposit even though he was told that Mr Chan had arrived at 2.40 p.m. with the cheques to complete. Mr Chan says he put to Miss Yu that she had agreed he could bring the cheques at 3 p.m. "why did you do that?" he asked. Her explanation was that it was not her idea to forfeit the deposit, but her clients. She added, and I regard this comment as significant - "It was expected that you would come over with the money and the deposit would forfeit. It's time for our office to close." I accept Mr Chan's evidence in its entirety both as to the discussions before 1 p.m. and as to what happened thereafter. He was honest and guileless. I believe Miss Yu's words and conduct were such as to induce the belief that completion at or about 3 p.m. was acceptable. It is clear that Miss Yu knowingly misled Mr Chan. The way she behaved, in her own mind, left Mr Chan in an uncertain position. She knew that there was a trap into which more likely than not because of her conduct, he would fall, thus enabling her to advise her client within minutes that he should forfeit the deposit. Her attitude, to judge from her evidence, was that she saw nothing wrong or questionable in this.

21. Whatever may have been originally the significance of the "prior to 1 p.m." completion time on the 7 April, as specified in clause 4.01 the conduct of the parties varied that by agreement and acquiescence. I do not need to consider Mr Kenneth Chan's arguments based on Camberra Investment Limited v. Chan Wai-tak 1989 1 H.L.R. 570 though he may have had difficulty in convincing me that that clause 2 of the agreement should not be read in conjunction with clause 4.01, and that completion did not include payment of the balance of the purchase price. All that is of academic interest only.

22. The parties had become preoccupied with the matter of inspection on the completion date. The Plaintiff was entitled to inspection before completion. The parties came to an agreement that completion would take place with inspection to be carried out before 7 p.m. because that was the time at which the purchase monies would finally be released to the vendors (Defendants.) The actual time of the completion had in fact become a "moveable feast" whilst this variation, which was distinctly in favour of the vendors and had been a concession by the purchaser, was incorporated into the agreement. As I have already found, Miss Yu agreed or at least acquiesced by her words and her conduct in a moving of the completion time to 3 p.m. Even on her own evidence she felt that perhaps Mr Chan did not quite know where he stood on this. Moreover as Mr Chan's evidence indicated, she was expecting him to turn up with the money at or about the time at which he did. He did in fact turn up for completion in accordance with the agreement reached.

23. I have stated that I accept Mr Chan's evidence about this arrangement, but there is in Miss Yu's evidence a somewhat startling frankness. Although she felt that there was nothing wrong in her attitude, it seemed to me that this was part of a game directed along the lines "how can we contrive a situation in which we can bring about a forfeit of the deposit so as to benefit our client to the tune of $700,000?" Undoubtedly if her solicitor colleague in Baker & McKenzie was fully in the picture he connived at what she had done. It was unprofessional behaviour of a high order and I condemn it unreservedly.

24. Mr Rimsky Yuen makes a number of points in his extensive written submissions. The fact that when the Plaintiffs issued a writ on 9 April, they claimed specific performance and later changed the claim to a return of deposit etc. is of no consequence. I am satisfied that such was the confused state following this unusual, and I trust never to be repeated set of circumstances, that there is absolutely no merit in this point.

25. Much was made of the interpretation to be put on the clauses. As I indicated to Mr Rimsky Yuen, the primary issue was what was agreed between the solicitors for the parties and what inferences were to be drawn from the correspondence, the oral evidence and the extraneous circumstances. Much of his submission was concerned with the unimportant aspects forming his challenge to Mr Chan's credibility. I fear he has discounted the content, effect and overall significance of Miss Yu's own evidence. I am quite unable to accept his comment or argument relating to the financial offers put forward by Mr Chan to try and persuade Miss Yu to do what she and her firm ought to have advised their clients to do - i.e. complete at 3 p.m. or thereabout. She concealed the true position from her client. Mr Chan's reactions were panic stricken but human - I do not suppose anyone had ever tried to contrive such a potentially disastrous trap for him. The comments on Mr Chan's relationship with the Plaintiffs are unworthy.

26. There is a submission that Miss Yu's variation of the time for completion is of no validity, relying on section 3 of the Conveyancing and Property Ordinance and the judgment of Godfrey, J.A. in Wellfit Investments Ltd v. Poly Commence Ltd. The facts of that case are very different from this case. There was linked prior or subsequent sale. It was an action for specific performance. In the case cited the learned Judge at first instance (Keith, J. as he then was) did not find that there had been an oral extension of the time for completion, yet had gone on to find, in all the circumstances that an extended time for completion had not expired. Godfrey, J.A. in opening his review of the evidence and law applicable said

"In the absence of any variation, waiver or estoppel there would be no ground in law for challenging the rescission of the contract. But what about equity? Even in the absence of any variation, waiver or estoppel might not equity ... view [the] purported rescission of the contract as unconscionable, and therefore to be disallowed? All these possibilities fall to be considered."

I will deal with them under identical headings.

Variation

27. The letter from Miss Yu, bearing fax timing 12.49 p.m., was unarguably a variation of the agreement as I have referred to earlier on several occasions. Its timing makes it clear in my view as a matter of practicality that completion could not take place before 1 p.m. Its contents viewed in the time sequence made it quite clear that the time was also varied. It is the only common sense implication. I hold that the letter itself is a variation in accordance with section 3 of the Ordinance. If completion was to be before 1 p.m. it would have said so. It was as I have said not possible.

Waiver

28. The right to rescind can be lost by waiver. In this case, on the evidence and the facts as I have so found, waiver was clear and unequivocal. Miss Yu indicated clearly to Mr Chan on his construction of what was said, and I accept that, that completion would take place at 3 p.m. when he was to come by to collect the keys.

Estoppel

29. Miss Yu, at the very least, indicated by the letter referred to, and her oral exchanges with Mr Chan, that any right to rescind for non-performance of the contract (failure to complete) by 1 p.m. would be kept in suspense providing completion took place before inspection of the premises. As I have found it was more precise than that. Mr Chan acted on that. He had all the necessary material with which to complete. He had to pick up the keys to put into effect the agreed inspection. He arranged to complete and collect the keys after lunch. He undoubtedly relied upon the representation by Miss Yu.

Equity

30. Even if I had been unable to find that there had been a clear unequivocal agreement or representation, and I was simply thrown back on Miss Yu's own evidence with the documentary evidence, it would be entirely unconscionable to permit the vendors to rescind. There was undoubtedly a trap and Miss Yu knew it. As soon as she saw 1 p.m. pass she was swiftly in action to take advantage of the trap and impose forfeiture. She expected him to appear at about 3 p.m. with all the essential material with which to complete.

Conveyancing Practice

31. If this is typical of Hong Kong conveyancing practitioners' attitudes to completion it is about time it changed. It is appalling to think that one conveyancer could behave in such a way to another. It is entirely unprofessional. It is utterly destructive of trust and straightforward dealing. It is reprehensible sleight of hand. I am satisfied that Miss Yu had given no thought to the ethical and professional position. She could not see anything wrong in what she had done and had not done, on her own evidence. I asked her where she had done her training as a solicitor and she informed me that it was with the firm which she represented in this transaction throughout. It says therefore little for the training of the professional in this, albeit limited context. It may well be therefore that Miss Yu is not to be criticised for her conduct if she had been led to believe that this was 'the name of the game'. At the end of the day it is of course the lay client who bears the brunt of such conduct. I am not privy to all the details of the contact between the Defendants and their solicitors over the material time, nor should I be, but it seems clear that they were not fully informed of what had passed between the solicitors over the time for completion and although I found Mr Leung to be a witness upon whose evidence I could not rely, he may not have been well served. His solicitors brought about this piece of litigation.

Written submissions

32. At the end of this case I asked for submissions to be made in writing. I indicated that I did not want a 'book', my experience of written submissions being that they are rarely concise and succinct. In such a short case with much clearer issues after the evidence I expected at most 10 sheets. One counsel observed this and confined himself to an admirable summary in 8 pages. The other document of submissions ran to 19 pages. Therein lies room for some fresh thinking at the Bar.

Judgment

33. There will be judgment for the Plaintiffs for:

1) Repayment of the deposit of $700,000 with interest thereon from 7 April 1997.

2) Repayment of the Stamp Duty of $192,500 with interest thereon from 7 April 1997.

3) Costs on an indemnity basis. I have already set out the circumstances and my findings which justify an order for indemnity costs. I do not propose to repeat them.

4) The rate of interest is agreed to be the judgment rate.