EVER BRIGHT (H.K.) CONSTRUCTION ENGINEERING LTD v. KOSASIH MUANTO

DCCJ 1402/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 1402 OF 2010

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BETWEEN

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JUDGMENT

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1.  This is a claim in breach of contract regarding the sale and purchase of a real property known as Unit 10 on the 20th Floor of Block C of Wah Tat Industrial Centre, No. 8 Wah Sing Street, Kwai Chung, New Territories (“the Property”).

The Sale and Purchase agreement

2.  On 2 November 2009, the defendant as the Vendor and the plaintiff as the Purchaser entered into a Provisional Agreement for Sale and Purchase under which the defendant agreed to sell and the plaintiff agreed to purchase the Property at a purchase price of HK$1,120,000.00 (“the Provisional Agreement”).  The plaintiff paid an initial deposit of HK$60,000.00 to the defendant upon the signing of the Provisional Agreement.

3.  The Provisional Agreement contained a handwritten Clause 17 which stated, amongst others, in Chinese : “...雙方協議如買方於成交前未能辦妥銀行按揭，賣方願意將成交期順延。(一個月即2010年1月30日)” which, as translated, “...Both parties agreed that if the Purchaser could not obtain bank mortgage before the completion date, the Vendor is willing to delay the completion date (one month or 30 January 2010).”

4.  On 16 November 2009, the plaintiff and the defendant entered into a formal Agreement for Sale and Purchase for the Property (“the Formal Agreement”).  The plaintiff paid a further sum of HK$52,000.00 to the defendant being the further deposit and in part payment of the purchase price.  The total deposit paid was HK$112,000.00 (“the Deposit”).

5.  The Formal Agreement contains, amongst others, the following provisions :-

a.  “…, the Vendor….shall execute to the Purchaser…a proper Assignment of the said property free from incumbrance.” (Clause 4);

b.  “The Vendor shall give title to the said Property in accordance with Section 13A of the Conveyancing and Property Ordinance Cap. 219. The Vendor shall at his own expenses prove his title to the said Property in accordance with Section 13 of the Conveyancing and Property Ordinance Cap. 219 and shall at the like expenses make and furnish to the Purchaser such original and / or certified copies of any deeds or documents of title (not relate exclusively to the said Property), wills and matters of public record as may be necessary to prove such title….” (Clause 6(a));

c.  “Such of the muniments of title as are required for the purpose of giving title to the said property will be delivered to the Purchaser…” (Clause 6(b));

d.  “Any requisition or objection in respect of the title to the said Property shall be delivered in writing to the Vendor’s solicitors within 7 working days after the date of receipt of title deeds and documents by the Purchaser’s Solicitors…” (Clause 7(a));

e.  “The Purchaser shall be deemed to have waived his right to raise requisition or objection if requisition or objection on title is not delivered to the Vendor’s solicitors within the time stipulated above.” (Clause 7(b));

f.   “Should the Vendor failed to complete the sale in accordance with the terms and conditions of this Agreement, all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be returned forthwith in full to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution.” (Clause 9);

g.  “Nothing in this Agreement shall be so construed as to prevent either the Vendor or the Purchaser from bringing an action and obtaining a decree for specific performance of this Agreement either in lieu of the aforesaid damages or in addition to such damages as the party bringing such action may have sustained by reason of the neglect or refusal of the other party to complete the said sale or purchase at such time and in such manner as aforesaid.” (Clause 10);

h.  “Time shall in every respect be of the essence of this Agreement.” (Clause 14);

i.    “The Completion Date

On or before the 31st day of December, 2009 between the hours of 9:30 a.m. to 5:00 p.m. on a weekday.” (Part VI of the Schedule to the Agreement)

6.  In addition to the rather standard clauses above, there is a Clause 37 typed out in Chinese : “雙方協議如買(方)成交前未能辦妥銀行按揭，賣方願意將成交順延。(一個月即2010年1月30日) 。” which, as translated, means “Both parties agreed that if the Purchaser could not obtain bank mortgage before the completion date, the Vendor is willing to delay the completion (one month or 30 January 2010).”

7.  This Clause 37 therefore reflects the equivalent clause in the Provisional Agreement.

8.  The defendant did not deliver any title deeds to the plaintiff at all before 31 December 2009 despite chasers from the plaintiff's lawyers.

9.  Since the plaintiff did not manage to obtain any bank mortgage before the completion date of 31 December 2009, it should follow that Clause 37 of the Formal Agreement should automatically become activated and the completion should be delayed, as with the parties’ prior agreement, to 30 January 2010.

The mistake

10.  However, it appears that the plaintiff and its lawyers were not aware of this Clause 37 and they wrote to the defendant’s solicitors on 31 December 2009 stating, amongst others, that :-

“…despite our repeated requests and demands, your client has still failed and / or refused to furnish us with the relevant title deeds and documents….whereas the stipulated time for completion…(which was scheduled to take place at or before 5:00 p.m. today, 31 December 2009) had passed.

As such, your client was unable to show, prove and give good title of the property to our client before completion and thus has failed to complete the sale in accordance with the terms and conditions continued in an Agreement for Sale and Purchase…dated 16 November 2009…Your client’s aforesaid conduct has already constituted a fundamental and repudiatory breach of the term and conditions of the Agreement.

…we are instructed to demand your client through your firm…for the immediate return of all the deposits….but without prejudice to our client’s rights to bring an action and obtain a decree for specific performance of the Agreement…”

11.  One would, of course, expect that the defendant would now point out Clause 37 of the Formal Agreement. Instead, his solicitors replied on 5 January 2010 :-

“We are instructed to write to advise that the title deeds and documents of the above property are being held by our client’s former solicitors. Our client has taken out a Summons….

In the premises, our client proposes completion date of the above property be postponed to 29 January 2010. Please take instructions and revert whether our client’s proposal is agreeable to your client soonest.”

12.  It would appear, rather bizarrely, that both parties were acting under a mistake.  It follows that one must now look at the intention of the parties at the time of contract to ascertain what the contractual terms were and if any party has breach such terms.

The intention of the parties at the time of contract

13.  It is surprising that no evidence on any pre-contract discussion (which resulted in Clause 37) was given in their respective witness statements or at trial by either the plaintiff (represented by one of its directors, Mr. Law Kwok Ming (“Mr. Law”)) or the defendant.

14.  Instead, the evidence came from the defendant’s witness, Madam Tam Siu Mei (“Madam Tam”) at a late stage of trial for the first time (she did not mention this in her witness statement either).  Therefore, the only evidence before the court regarding the parties’ original intention at the time of the Provisional Agreement (and, presumably, the Formal Agreement 2 weeks later) came from Madam Tam.

15.  Madam Tam was an estate agent.  According to her evidence :-

a.  Mr. Law approached her and they have viewed a few properties on 2 November 2009.

b.  Mr. Law wished to purchase the Property and enter into a discussion with the defendant.

c.  The defendant was aware of the problems with the title but have informed Mr. Law that “it was a money problem” regarding management fees in arrears etc.

d.  Mr. Law agreed for an arrangement that the deposit paid on the Property could be used to pay and perfect the title.

e.  Madam Tam had asked her colleague (who was still in the estate agent office) to perform a land search and prepare a draft version of the Provisional Agreement and to bring these to the Property.

f.   Madam Tam said that she had perused the Land Search and noticed that besides various charging orders, there was a stamped copy of a Judgment under the owner particulars next to the defendant’s name, which she took it as “there was something under litigation”. She also saw Provisional Sale and Purchase Contract dated around 2006 under “Deeds Pending registration”, which she took it to mean “the vendor had sold the property to someone but not yet completed”.

g.  Madam Tam was rather vague on whether she had informed the parties of the implications of these title defects but she claimed that the defendant knew them all along.

h.  Madam Tam said that Mr. Law was aware of “some problems” with the title which might cause problems with arranging bank mortgage, but the Property was being sold at a bargain price so he was willing to either pay cash for a quick completion date on 31 December 2009 or, if he were to apply for bank mortgage and failed to obtain one before the completion date, he would need one more month for the defendant to sort out various defects.

i.    Thus this arrangement was written down under Clause 17 of the Provisional Agreement.

16.  As stated before, Mr. Law did not give any evidence in court regarding this discussion on 2 November 2009.

17.  On the other hand, the defendant maintained that he was totally unaware any problem with the title of the Property until April 2010 when he had instructed another law firm and was advised of such.  The reason he gave was that he did not have the Title Deeds.

18.  The court rejects this evidence: the defects of the title must have been obvious from a Land Search without any need to look at the actual documents.  Even if the defendant could not read this or did not understand this himself, his lawyers and / or the estate agent must have advised him of this.  Further, if the defendant was totally unaware of any problem with the title of the Property, why would he sell it at a bargain price, and why would there be the provision as stated in Clause 17 of the Provisional Agreement and Clause 37 of the Formal Agreement?

19.  After reviewing all the evidence, the court finds that the intention of the parties at the time of the contract must have been as follows :-

a.  The defendant was aware of at least some defects in the title and also of the fact that the deeds were physically in the hands of his previous solicitors awaiting redemption.

b.  The defendant desperately needed money to redeem his title deeds from his previous lawyers and to perfect the title defects.

c.  The plaintiff, on the other hand, was willing to take the risk in search of a bargain. It was not clear whether the plaintiff was aware of all the problems with the title of the Property. There was no evidence that the plaintiff has performed a Land Search or received independent advice before entering the Provisional Agreement. Even when a Land Search was performed after the Provisional Agreement, it was not clear what independent advice the plaintiff has received before entering the Formal Agreement.

d.  In any case, the plaintiff must have agreed that the defendant could apply the deposit for such purposes.

e.  The plaintiff was also willing to either pay cash for a quick completion date on 31 December 2009 or, if he decided to apply for bank mortgage and failed to obtain one before the completion date, the parties agree for one month’s extension so that the various defects could be sorted to the satisfaction of the mortgagor bank.

20.  Mr. Chan for the plaintiff argued that Clause 37 should be taken to mean that the plaintiff needed to notify the defendant to “elect” for the extension first before the completion date could be extended.  The court does not agree with this interpretation.  The meaning of Clause 37 should be taken from what it says on face of it, which was entirely consistent with the intention of the parties at the time the contract was made. There was no provision for any need for one party to inform the other to elect for an extension for completion date: the parties have agreed that completion date was to be extended on the occurrence of one event: the failure of the plaintiff to obtain bank mortgage by 31 December 2009.

Events subsequent to the mistake

21.  What happens subsequently is not in dispute.

22.  The defendant finally redeemed his title deeds from his pervious solicitors.  He sent them via his own lawyers to the plaintiff’s Solicitors on 21 January 2010.

23.  The title of the Property was very problematic: amongst others, there were several Charging Orders, several title documents were missing (including a stamped copy of a Judgment (Memorial number 08092900200014) which was a crucial document to prove that he was the current owner) and even more crucially, there was a “Registration Withheld” Provisional Sale and Purchase Contract dated 13 October 2006 under “Deeds Pending registration”.

24.  The plaintiff, under the mistaken impression that the defendant has already committed a repudiatory breach, chose to remain silent in order to preserve his rights.

25.  As such, although there might have been some “off-record” oral conversations between the parties’ solicitors, no formal requisitions was raised.

26.  Having heard nothing formal from the plaintiff’s solicitors despite repeated chasers, the defendant’s solicitors wrote to demand the return of the title deeds.

27.  In late March 2010, there were some communications between the parties concerning “cancelling the transaction” but there was no agreement about the how and when each party should return the deeds and the Deposit, and which party should bear the costs for Cancellation Agreement and Registration fees.

28.  It was not until 16 April 2010, after the defendant has lodged a complaint to the Law Society and instituted legal proceedings against the plaintiff solicitors, that the title deeds were returned.

29.  The defendant, however, did not return the deposit to the plaintiff.

30.  The plaintiff initiated the current action claiming for breach of contract and claim for damages and he later amended the claim to seek for specific performance in lieu or in additional to damages.

31.  The defendant made a counterclaim for breach of contract and claim damages for, amongst others, "wasted" legal and registration fees.

Role of Mr. Cheung Lai Shan (“Mr. Cheung”)

32.  Against this background of “written” exchanges between the respective lawyers from late December 2009 until late March 2010, the parties themselves were behaving rather differently.  On receiving the title deeds on or around 21 January 2010, Mr. Law has tried but failed to obtained a bank mortgage so he asked his friend, Mr. Cheung, to help in around early February 2010.

33.  This, of course, took place after the extension of completion date stipulated under Clause 37.

34.  Mr. Cheung was an experienced estate agent who had known the plaintiff for over 20 years.  He noted the title defects (in particular the “Registration Withheld” Provisional Sale and Purchase Contract dated in 2006 under “Deeds Pending registration”).  He has tried his best to obtain a bank mortgage: he called Madam Tam regarding various missing title documents, arranged for a finance company to inspect the Property and met with the defendant to try to resolve the title problems.

35.  However, despite his efforts, Mr. Cheng failed to obtain mortgage from several banks and financial institutes.  He told the court that the “Registration Withheld” Provisional Sale and Purchase Contract dated in 2006 against the Property was the biggest hurdle.

36.  There were disputes on whether Mr. Cheung did or did not requested further extension of time for completion, whether the request/s were accepted (thus an "oral agreement" existed), and whether, in the first place, he told the defendant or Madam Tam that he had authority from the plaintiff to do so.

37.  The court finds Mr. Cheung a reliable witness and accepts that he has only been asked by Mr. Law to mount a last-ditch effort to see if something could be salvaged when the completion date (both the date as Mr. Law thought and the date in reality under Clause 37 of the Formal Agreement) has expired.

38.  Mr. Law, as he stated in court, was still willing to purchase the Property if title could be perfected, if bank mortgage could be arranged and if a lower price could be negotiated.  He was clearly of the view that there has already been a repudiatory breach of the Formal Agreement by the defendant so any such salvage effort would have to be in form of a new agreement.

39.  As such, Mr. Cheung could only have informed the defendant and Madam Tam that he was assisting the plaintiff to arrange for bank mortgage.  The court sees no logical reason why Mr. Cheung, under the circumstances, should tell anyone that he had the authority from the plaintiff to negotiate any variation of an already expired contract.

40.  However, all these disputes are irrelevant because it is well-established law that all contracts for the sale of or any other dealings of land (like variation of the completion date) should be made in or be evidenced by writing and signed by the party (section 3 of the Conveyancing and Property Ordinance).

41.  In Wellfit Investment Ltd v. Poly Commence LtdCACV56/1996, Godfrey J.A. held (para.12) that :-

“I must also add that since the law requires contracts for the sale of land to be made in or evidence by writing (see s.3 of the Conveyancing and Property ordinance, Cap.219), any oral variation of the contract here would have been ineffective : see Goss v. Lord Nugent (1835) 5 B & Ad. 58. So the conversation cannot be held to have operated to vary the contract between the parties so as to extend Wellfit’s time for completion, whether in the manner decided by the judge or at all.”

42.  There are no such written and signed documents in the current case.

43.  On the other hand, even if, as the defendant now maintained, that there were oral agreements between the parties to vary the completion time until 8 and then 22 March 2010, he has done nothing at all to perfect the defects in the title during this time despite the fact that, as the court finds, he must have been aware of such defects all along.

44.  In fact, the defendant even failed to provide all the title documents in his possession to the plaintiff. The defendant received on 28 January 2010 a stamped copy of a Judgment (Memorial number 08092900200014) which was a crucial document to prove that he was the current owner.  This was still before the “extended” completion date (30 January 2010) as stated in Clause 37 of the Formal Agreement and, of course, before what the defendant now alleged as the subsequent “orally-agreed” extended completion dates (8 March and then 22 March 2010).  However, the defendant never released this document to the plaintiff.

45.  As such, if the defendant has ever believed that there were any “orally-agreed” extended completion dates at that time, the court questions why he has done nothing to facilitate the completion at those dates by providing all the title documents in his possession and by perfecting the title before those dates?

46.  As such, the court finds that such "oral agreements" are  simply allegations "drummed up" by the defendant to maintain his counter-claim which in turn serves as his excuse to explain why he is still retaining the Deposit.

Liability

47.  The court is therefore faced with a rather peculiar problem in that both parties appeared to have breached their duties in the Formal Agreement :-

a.  the plaintiff, by remaining silent under the mistaken belief that there had already been a repudiatory breach, failed to raised any requisition in the stipulated time according to Clause 7(a) of the Formal Agreement; and

b.  the defendant, on the other hand, has completely failed to deliver all relevant title deeds documents to the plaintiff in the first place, and has completely failed to prove his title or to assign the Property free of incumbrance according to Clauses 4, 6(a) and 6(b) by 31 December 2009, 30 January 2010, 8 March or even 22 March 2010.

48.  The consequence of the plaintiff not raising the appropriate requisition is that, according to Clause 7(b) of the Formal Agreement :-

“The Purchaser shall be deemed to have waived his right to raise requisition or objection if requisition or objection on title is not delivered to the vendor’s solicitors within the time stipulated above" (meaning Clause 7(a))

49.  The question before the court is: should the plaintiff, having waived his right to raise requisition or objection under the Formal Agreement, be deemed to have accepted the title and therefore his failure to complete the sale and purchase should be considered a repudiatory breach despite the fact that the defendant has also failed to show good title?

50.  Mr. Mok for the defendant drew the court’s attention to the following from Halsbury’s Laws of Hong Kong, in particular, under :-

a.  230.209 Time for requisitions :- “…there is no time limit for the making of requisitions on title, although the purchaser should communicate within a reasonable time of finding out the problem with the title.”

b.  230.246 Acceptance of title: “If the purchaser fails to send in requisitions or objections within the time fixed by the contract for that purpose…he may be held to have waived his right to make requisitions or objections or to insist on those which he has made, and he is then deemed to have accepted the title.”

c.  230.210 Position where the vendor’s title is wholly bad: ”A condition limiting the time for requisitions or objections does not apply where the vendor’s title is wholly bad; it merely applies to such requirements as might have been properly enforced against a vendor who had a valid title. Hence it cannot be used to force a bad title on a purchaser who has made his requisitions as to title too late.”

51.  Mr. Mok argued that 230.209 and 230.210 should apply to cases when requisitions were raised late, but these should not apply to the current case when the plaintiff completely failed to raise requisitions. Mr. Mok also relied on Wu King Kuen v Leung Kwai Lin Cindy [1999] 4 HKC and suggested that even when a title documents was lost, the vendor could rely on secondary evidence.

52.  Mr. Chan for the plaintiff, on the other hand, argued that secondary evidence would not be available for the crucial “Registration Withheld” Provisional Sale and Purchase Contract dated around 2006 under “Deeds Pending Registration”.  He explained that since the deed was “pending registration”, no copy would be available from the Land Registry and, despite its “pending registration” status, it would still take precedent over the current transaction.  The only way to obtain a good title under the circumstances would be for the original “provisional purchaser”, a Mr. Ng Sai Kong, to apply for cancellation of this agreement, or for a court application to be taken out.

53.  Indeed, both Mr. Mok and Mr. Chan have submitted cases concerning failure to raise requisitions which were decided one way or the other.

54.  One must accept that each case must be decided on its own facts.

55.  In this case, it is quite obvious that the title has been, at all relevant times, “wholly bad” and in fact could not be much worst. No court would see it just and reasonable to force this title on the plaintiff even if he has completely failed to raise any requisitions.

56.  This court is more persuaded by the case of Ng King Wai Terence, Lau Mei Wan v Qing Yuan Enterprises Limited HCMP No. 748 of 1998in which Deputy Judge Li stated :-

“…since the duty under common law of Clause 159a) of the Agreement to clear incumbrance on property to be conveyed free from them is distinct from that to furnish good title under common law or under Clause 14(a) of the Agreement, the defendant is obliged to purge any mortgage, charge or incumbrance on the property before or on completion. Indeed, no one with any conveyancing experience would ever think that a requisition or objection needs to be raised before a vendor who has contracted to convey free from incumbrances is bound to clear incumbrances such as mortgages and legal charges.”

57.  The title to the Property was clearly “wholly bad” at all relevant time and the defendant must have been aware of it and yet did nothing to perfect it.  Thus the Property was never in a state suitable for assignment whether on 31 December 2009, 30 January 2010, 8 March or 22 March 2010.

58.  In failing to discharge his own duty to clear incumbrances on the title or to furnish good title, the defendant has no right to claim any breach of contract by the plaintiff in failing to complete the transaction and to retain the Deposit, irrespective of the fact that the plaintiff did not raise any requisitions.

59.  Even if one accepts the defendant’s version of events, that he only became aware of the defects in the title in April 2010 when the deeds were returned to him and he had received legal advice from another law firm, he should have simply returned the Deposit there and then and thus the current action might have been avoided.

Order

60.  The court orders that judgment be entered for the plaintiff and the defendant’s Counterclaim be struck out.

61.  The plaintiff is seeking specific performance of the contract.

62.  However, the remedy of specific performance is an equitable one and requires a “clean hand” from the seeker. Given Mr. Law's awareness of the potential risk when entering the contract (he has either failed to perform any Land Search and seek independent advice on the Land Search before entering the contract, or if he has, the full problem with the title should be obvious to him from the beginning), his mistake regarding Clause 37 of the Formal Agreement, his failure to raise requisitions and failure to return the title deeds against an undertaking by his lawyers, the court holds that specific performance should not be a proper remedy under the circumstances.

63.  The court therefore orders that Judgment be entered for the plaintiff for damages to be assessed, and further an order nisi that the defendant bears the plaintiff’s costs of this action to be taxed if not agreed.