BIG BOSS INVESTMENT LTD v. SO LAI KEI AND ANOTHER

HCA 2184/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2184 OF 2009

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REASONS  FOR  DECISION

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1.  This is an Order 14 application taken out by the Plaintiff.  Some facts are not really in dispute.

2.  The 1^st Defendant was at the material times the registered owner of a property situate at Flat C, 16^th Floor and Roof of Phoenix Court, No. 39 Kennedy Road, Hong Kong and Car Parking Space No. B33 on Level B of Phoenix Court (“the Property”).  The 2^nd Defendant is the son of the 1^st Defendant.

3.  On or about 28 July 2009, a Provisional Agreement for sale and purchase of the Property was signed by the Plaintiff with the 2^nd Defendant as agent of the 1^st Defendant.  At the material times, the 2^nd Defendant hold himself out as agent of the 1^st Defendant, but there was no documentary proof of his authority.  He signed a declaration in favour of the Plaintiff in Chinese confirming that he was the agent for the 1^st Defendant and he would deliver the (授權書) to the Plaintiff within 7 days.  He further agreed to indemnify the Plaintiff against all loss and fees incurred by the Plaintiff as a result of any breach of the Provisional Agreement by the 1^st Defendant.

4.  The Provisional Agreement provides that the Property is to be sold at the price of HK$10,300,000.00.  An initial deposit of HK$495,000.00 had to be paid, and was paid, upon signing of the Provisional Agreement.  A further deposit of $535,000.00 was to be paid upon signing of the formal sale and purchase agreement on or before 14 August 2009, and the balance upon completion.

5.  It is provided by Clause 8 of the Provisional Agreement that “Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the [1^st Defendant] shall immediately compensate the [Plaintiff] with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

6.  It is the case of the Plaintiff that there are the following implied terms in the Provisional Agreement :-

a.  The 1^st Defendant shall show and give good title to the Property;

b. Good title to the Properties shall be shown within a reasonable time and shall in any event be shown on or before the completion date (i.e. 9 September 2009); and

c. Time shall be of the essence in respect of the duty to show and give good title to the Property on or before the completion date (i.e. 9 September 2009).

7.  The Defendant denies these implied terms. 

8.  No formal agreement had been executed on or before 14 August 2009.  The Plaintiff did tender the further deposit in the sum of $535,000.00 and was received by the 1^st Defendant.

9.  The Plaintiff claims that the 1^st Defendant failed to show good title in that the 1^st Defendant could not before the completion date produce the following documents to the Plaintiff –

a.  the original Power of Attorney issued by the 1^st Defendant in favour of the 2^nd Defendant;

b. a certified copy of the Occupation Permit no. H188/77;

c. a certified copy of the Letter with Layout Plan memorial no. UB1097437;

d. a certified copy of the Memorandum with Amended Car Park Layout Plan memorial no. UB1361772; and

e.  a certified copy of the Certificate of Compliance memorial no. UB2698935.

10.  Both parties were represented by solicitors in the arrangement of the sale.  On 14 August 2009, Messrs. Tai Tang & Chong (“TTC”), solicitors then acting for the 1^st Defendant sent the title deeds an document of the Property to the Plaintiff’s then solicitor, Messrs. K.C. Ho & Fong (“KC Ho”). 

11.  By letter dated 14 August 2009, KC Ho demanded for the Power of Attorney from the 1^st Defendant authorising the execution of the Provisional Agreement by 2^nd Defendant.  By letter dated 19 August 2009, KC Ho raised requisition for title documents, including the documents list out in paragraph 9 b to c above (“the outstanding documents”).

12.  By letter dated 4 September 2009, TTC sent over a draft Power of Attorney for approval by the Plaintiff.  And on 7 September 2009, TTC informed KC Ho that a section 7 Power of Attorney had been executed by the 1^st Defendant in favour of the 2^nd Defendant before a Notary Public in Vancouver and was pending authentication at the China Embassy in Vancouver.  This Power of Attorney confirm the 2^nd Defendant with authority to deal with the Property, including sale.

13.  By letter dated 8 September 2009, TTC further confirmed that the 2^nd Defendant executed the Provisional agreement as agent for the 1^st Defendant.  TTC further stated that if the 2^nd Defendant failed to provide an Authorisation Letter as requested, this could not be construed as a breach of the Provisional Agreement.    TTC only provided plain copies of the outstanding document and further undertook to provide the certified copies of the outstanding document as soon as they received the documents from the appropriate Government Department.

14.  By letter dated 8 September 2009, KC Ho responded by saying that the Provisional Agreement had not yet been duly executed, as the 2^nd Defendant has not provided any Power of Attorney within 7 days.  In the letter, KC Ho further put on record that the titles of the Property has not been proved and their client refuse to accept the undertaking offered by TTC in provided the certificate copies of the outstanding documents.

15.  By letter dated 9 September 2009, TTC reiterated their view that with or without the Power of Attorney/Authorisation Letter, the Provisional Agreement was binding.  They further claimed that an Authorisation Letter was produced to the estate agent, Midland, who had delivered it to the Plaintiff.

16.  By a 2^nd Letter of even date, TTC claimed that the assignment would be executed by the 1^st Defendant upon receipt of the balance of the purchase price.  They claimed that time is not of the essence and they made time of the essence in this letter.  They also offered to extend the completion date to 21 September 2009.

17.  There are further correspondence between TTC and KC Ho on 9 September 2009.  I do not intend to repeat all the details.  It is clear that at this stage, i.e. the completion date, the Plaintiff is asking for the Power of Attorney to support the execution of the Provisional Agreement by the 2^nd Defendant for the 1^st Defendant.  And as the 2^nd Defendant was sick and staying in Vancouver, the Plaintiff is asking to look at the Power of Attorney to confirm the 2^nd Defendant had the authority to execute the Assignment for the 1^st Defendant.  And the Plaintiff is asking for production of the outstanding documents to prove title.  And KC Ho further claimed in their 2^nd Letter to TTC dated 9 September 2009, that since the 1^st Defendant had not proved the title, the Plaintiff was not obliged to complete the sale.

18.  As a result the Plaintiff did not complete the sale on 9 September 2009, the date stipulated in the Provisional Agreement.  It did not send any money for completion.  On 10 September 2009, KC Ho by letter claimed that the 1^st Defendant failed to prove the title of the Property throughout the material time and until the scheduled completion date and was therefore in breach of the Provisional Agreement.  The repudiation was accepted and the Provisional Agreement was terminated.  They demanded for refund of all deposit paid.

19.  On 11 September 2009, TTC sent a letter to KC Ho denying that the Plaintiff was entitled to terminate the Provisional Agreement.  They had then obtained the certified copies of the outstanding documents.  They reiterated that the time was not of the essence and offered again to extend the completion date to 21 September 2009.   And they suggest that the completion would be by way of undertaking – the Hong Kong style completion.

20.  On 23 September 2009, Messrs. Simmons & Simmons replaced KC Ho as the solicitors of the Plaintiff.  By their letter dated 23 September 2009, they demanded TTC to return the deposits paid, and liquidated damages for the amount of $495,000.00, interest and other charges incurred by the Plaintiff for the sale.

21.  By letter dated 25 September 2009, TTC denied the claim by Messrs. Simmons & Simmons.  But the 1^st Defendant refunded the deposits to the Plaintiff.

22.  The current proceeding was issued by the Plaintiff to claim the liquidated damages of $495,000.00 on the ground that the 1^st Defendant has been in breach of the Provisional Agreement and is liable under clause 8 to pay the liquidated damages.  They further claim against the 2^nd Defendant on his declaration when he undertook to indemnify the Plaintiff against any loss it suffered on the ground the 1^st Defendant failed to complete the sale.

23.  It is the proposed defence of the Defendants that the Plaintiff is not entitled to terminate the Provisional Agreement and I would consider the defence raised in detail hereinafter.  The Defendants also claim that the Plaintiff was in breach of the Provisional Agreement for not completing the sale on 21 September 2009 (the extended date for completion) and counterclaim for damages.

The Issues and Discussion

24.  It is not disputed that the 1^st Defendant could not produce the outstanding documents before completion date.  The question is whether the Plaintiff is entitled to terminate the Provisional Agreement and claim liquidated damages under clause 8 of the Provisional Agreement. 

25.  It has been raised by Ms. Lam, counsel for the Defendants, that it is an issue if the Provisional Agreement is a concluded contract.  I do not believe she is arguing that the Provisional Agreement is not binding on the parties.  While I note the former solicitors for the Plaintiff did mention in one of their letters that the execution of the Provisional Agreement is not completed, from the conduct of the parties, it is beyond doubt that both treated the Provisional Agreement as binding.  Otherwise, there would not be act such as delivery of title deeds and document to the Plaintiff for approval, termination by the Plaintiff, and proposal of postponing the completion by the Defendant. 

26.  It is not clear why the formal sale and purchase agreement has not been signed.  But it is trite law that when the formal agreement has not been signed, the parties are bound by the Provisional Agreement.  Ms. Lam refers me to Man Sun Finance (International) Corp v. Lee Ming Ching Stephen [1993] 1 HKC 113.   I thought this case support my point.  I only refer to the headnote :- “a ‘provisional’ agreement, so long as it contains all the essential terms of a contract for the sale of land (the price, the date of completion, whether vacant possession is to be given), stands on its own and is specifically enforceable at the suit of either party, either on its express terms or what the law describes as an ‘open contract,…”

27.  The next issue in dispute is whether time is of the essence. At the hearing, Ms. Lam do accept the general principle is time is of the essence for sale and purchase of land in Hong Kong, and it is for her to show special circumstances or agreement to depart from the general principle.  To complete the point, I need only to refer to the case of Wong Wai Chi Ann v. Cheung Kwok Fung Wilson [1996] 3 HKC 287, per Godfrey J A –

“In these Provisional Agreements for sale and purchase and today’s secondary market in Hong Kong, everybody does, and usually, proceed on the footing that time is to be of the essence …  Of course, each case must depend on its own facts.  But in the absence of special circumstances, it would usually be the case that a Provisional Agreement for sale and purchase in the common form in use in Hong Kong will be treated as one of which time is of the essence, although no express provision in that behalf is contained in the agreement.”

28.  The ruling of Godfrey J.A. was upheld by Court of Final Appeal in the case of Kwan Siu Man v. Yaacov Ozer [1999] 1 HKLRD 216.  And there is no evidence or fact before me to depart from the general rule.  Accordingly, the time for completion would be of essence for the Provisional Agreement. And it must follow that the 1^st Defendant should make title at completion, and prove the title at a reasonable time before completion.

29.  I was referred to the judgment of Deputy Judge Chung (as he then was) in Liu Tak Kin v. Chan Yiu Kai [1998] 4 HKC 362 when the Honourable Deputy Judge set out the following principles, which I entirely agree –

(a)  there was a duty on the part of the Defendants, as vendors, not only to show good title but also to answer reasonable and relevant requisitions satisfactorily within a reasonable time, and in any event before completion: see, for example, Koh Chong-ho v. Double Value Development Ltd. [1993] 2 H.K.L.R. 423, 432; Active Keen Industries Ltd. v. Fok Chi-keong [1994] 1 H.K.L.R. 396, 405;

(b) there was a duty on the part of the Defendants as vendors to produce certified copies of documents necessary for proving the chain of title: clause 4(a) of the agreement and s. 13, Conveyancing and Property Ordinance, Cap. 219;

(c)    there was a duty on the part of the Plaintiffs, as purchasers, to raise requisitions which have substance.  They must also be formulated with reasonable precision if they were to be effective: see Chan Chik Sum v. Great Pearl Ltd. [1997] 1 H.K.C. 27, 32B to F and 33B to D.

30.  Mr. Hui counsel for the Plaintiff submitted that the requisitions had been properly raised.  And the Defendants had failed to answer the requisition before the completion date and the Plaintiff is entitled to terminate the contract.  I have to look at the requisition raised.

31.  The first requisition raised relates to the Power of Attorney.  As for the execution of the Provisional Agreement, it is arguable if the term 授權書in the declaration signed by the 2^nd Defendant means power of attorney or authorisation letter.  I appreciate that under the Power of Attorney Ordinance, 授權書means Power of Attorney.  But the term is used in a standard form of document possible created by the estate agent, Midland.  And this is at least arguable if the Chinese term means power of attorney or letter of authorisation.  And there is dispute on fact whether the Authorisation Letter signed by the 1^st Defendant has been delivered by Midland to the Plaintiff.

32.  As for the Power of Attorney for the execution of the Assignment, this is relevant at the time of completion.  Since the Plaintiff had not attended completion, this is not a requisition or objection on title.  As suggested by TTC in one of their letter, the 1^st Defendant could execute the assignment personal.  Or the power of attorney may arrive in time.  I need only to refer also to the judgement of Godfrey J. (as he then was) in Champhon Industrial Limited v. Hight Projects Industrial Limited HCMP 3631/1992.  The headnote reads “a power of attorney which appears to have been duly executed by the donor of the power may for conveyancing purposes be presumed to have been validly executed, particularly if its execution has been attested by a witness or witnesses.  There is no need for the donor’s execution of the power to have been authenticated or certified by a notary public, even if the power was executed abroad.”

33.  It is questionable if the requisition on Power of Attorney was properly raised.  But the core issue is whether the Plaintiff is entitled to demand the 1^st Defendant to produce certified copies of the outstanding document for their inspection, and to have them at completion.   If this requisition is proper raised, the Defendants have not answer the requisition and the Plaintiff would be entitled to treat the breach as repudiation.

34.  In Liu Tak Kin’s case, the Honourable Deputy Judge ruled that a vendor is not permitted to fulfil his duties to show and give good title on completion by giving an undertaking to provide a title document at some point of time after completion, unless the sale and purchase agreement has expressly provided for such a mechanism.  Otherwise, the vendor has to prove title by producing certified copies of the title documents not relating exclusively to the property for sale.  Bare copy of such document would not be sufficient. 

35.  In Liu Tak Kin’s case, there is signed formal agreement.  But the basis of the Honourable Deputy Judge in coming to his conclusion is also based on section 13 of the Conveyancing and Property Ordinance which is applicable to our case.  Section 13 (2) provides that to show good title, the vendor has to produce copies certified by 2 solicitor’s clerks or certified by a public officer or a solicitor.   Hence the plain copies produced are not sufficient.

36.  And the breach of the 1^st Defendant is not only the failure to produce the certified copies of the outstanding document for examination by the Plaintiff, but from the correspondence, it is clear that he could not produce the document on completion date to make good titles.  The 1^st Defendant is in fundamental breach of his obligation under the Provisional Agreement.

37.  Ms. Lam relied heavily on the judgement of Deputy Judge Whaley in Ip Fung Yee v. Norwegian Missionary Society [1998] 1 HKLRD 94 to submit that it is arguable that the vendor may make title within a reasonable time from date of completion. 

38.  The Honourable Deputy Judge recorded that the parties’ agreement was silent as to the date by which the vendor was obliged to make good the title.  It seems clear from authority that in the absence of any express term the vendor’s obligation was to make good title, which include answering all requisitions and obligations within a reasonable time to enable the purchase to satisfy himself on the matter, get his money ready and complete on the date fixed for completion.  So far, the ruling is against Ms. Lam. 

39.  The Honourable Deputy Judge go on to say that the decision as to whether a vendor has complied with its obligation in that respect can only be made on the facts and in the context peculiar to the case on hand.  And in Ip Fung Yee’s case, The Honourable Deputy Judge ruled that the offer of an undertaking to give a confirmatory assignment within 30 days of the completion is a sufficient answer to the requisition raised.

40.  What distinguish the Ip Fung Yee’s case from this action, there the parties contemplated completion by way of undertaking and the Honourable Deputy Judge found that there could be no suggestion that the undertaking offered by the vendor was in any way inadequate as an undertaking.  There is no evidence in this case to suggest that the completion is to be by way of undertaking.  Completion by undertaking is a Hong Kong style of completion.  There is no provision for the manner of completion in the Provisional Agreement and a formal completion should be contemplated when there is no agreement.  From the correspondence between TTC and FC Ho, there is yet no agreement reached between the parties on completion by undertaking.  And a vendor is not entitled to impose completion by undertaking, as the Hong Kong style of completion carries certain degree of risk that a purchaser is perfectly entitled to demand for formal completion.

41.  At the submission, Ms. Lam submitted that the Plaintiff had not tender payment on the scheduled date of completion.  Hence they were equally at fault.  The Plaintiff should not be entitled to terminate the contract.  I cannot agree.  When it is clear that the vendor cannot perform his obligation, particularly an obligation that has to be performed before completion, such as making good titles, I fail to see why the purchaser has to tender payment before he could accept the repudiation.  The point has been considered by the Court of Appeal in Grand Trade Development Limited v. Bonance International Limited CACV 1002/2000.  No payment was tendered before the purchaser accepted the repudiation of the vendor who failed to make titles.  The only issue is whether the requisitions have been properly raised.  Though not directly on the point, I am of the view that the point of Ms. Lam could not be correct.

42.  The facts in this case is not in dispute.  And from the above analysis, it is clear that  the 1^st Defendantcould not delivered the certified copies of the outstanding documents before completion to prove title.  It is clear that they are not in a position to make title at completion as they do not have the certified copies on the 10^th.    The Defendant is in clear repudiatory breach of the Provisional Agreement and the Plaintiff is entitled to accept the repudiation and has accepted the repudiation on 10 September 2009.

43.  Just to complete the point, Ms. Lam is not really arguing that the outstanding documents are not title documents.  She seems to suggest that they are not conceding the point when I raised the matter with the parties.  I need only to refer to Wong Bik Ching v. Yu Hon Chung 1996 No.MP2969 when it was held that prima facie when an instrument is registered against the property and it is not apparent from the land search that the document has ceased to affect the property, the document ought to be treated as part of the title deeds which the vendor should make available to the purchaser.   The outstanding documents are registered against the Property.

44.  Ms. Lam further argue that after the Plaintiff paid the 2^nd deposit on 14 August 2009, the Provisional Agreement is a concluded contract for the sale and purchase of the Property such that the Plaintiff may no longer rely upon clause 8.  She also submitted that clause 8 is a back out clause.  The issue is whether clause 8 is a back out clause AND its application lapse with the payment of the additional deposit.

45.  Clause 8 read –

“Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

46.  Clause 7 of the Provisional Agreement is the corresponding provisional to cover the position when the purchase fails to complete.

47.  Ms. Lam seems to suggest that upon payment of the further deposit, either parties would no longer be entitled to resile from the transaction and neither parties could rely on clause 7 or 8.

48.  If a formal sale and purchase agreement has been signed, the Provisional Agreement would be merged into the formal agreement.  Then clauses 7 & 8 would no longer be applicable.  When there is no formal agreement signed, the parties’ position would be governed by the Provisional Agreement.  Clause 8 would be interpreted according to the wordings used.

49.  Ms. Lam refer to the Man Sun Finance’s case in support of her argument that the back out clause has to be exercised in time.  As to the exact time for applying clause 8, it would be a matter for trial.

50.  Mr. Hui refer to the back out clause in the Man Sun Finance’s case which provides for the parties to back up before signing of the formal sale and purchase agreement. 

51.  A “back clause” has no magic.  It is a term of the agreement by which the parties agrees to limit his remedy when the other side is in breach of the agreement.  For the 1^st Defendant to back out from completion for whatever reason, the remedy of specific performance is not available to the Plaintiff.  They agree the compensation to the Plaintiff would be a sum equal to the initial deposit paid.  Is it unfair?  Clause 7 equally provides that on breach of the Plaintiff the 1^st Defendant would not entitled to specific performance, but only to forfeit the initial deposit.  The clause should be enforced.

52.  And as different from the back out clause in Man Sun Finance’s case, the clause 8 here provides that when the 1^st Defendant failed to complete the sale, the liquidated damages is payable.  It has a longer applicable time, i.e. until completion, then the clause in Man Sun Finance’s case.  And each clause should be determined on its own wordings.  Accordingly, I reject the argument of Ms. Lam that clause 8 is no longer applicable when the Plaintiff paid the 2^nd Deposit.  The Defendants are bound by the wordings of Clause 8.

53.  The 1^st Defendant had also raised a counterclaim.  It is submitted that the 1^st Defendant offered to extend the time if completion to 21 September 2009 is reasonable.  But given the analysis above, when the offer was made, the Plaintiff had terminated the Provisional Agreement.  there is no merit in this argument and the counterclaim is bound to fail.

54.  Not much has been submitted on behalf of the 2^nd Defendant who is liable under the declaration that he signed.  On the face of it, there is clear consideration given as the Plaintiff signed the Provisional Agreement on the strength of his undertaking given therein.  And there is no suggestion that the declaration cease to be of effect when the power of attorney/letter of authorisation was delivered.  It is the clear wording in the declaration that the 2^nd Defendant is to indemnify the Plaintiff against all loss and fees incurred by the Plaintiff as a result of any breach of the Provisional Agreement by the 1^st Defendant.  No limit of time is imposed.

Conclusion

55.  The law on Order 14 application is not in dispute and I do not intend to repeat the passages referred to me by counsels in their respective skeleton submission.  I remind myself that at the stage of Order 14 application, all that the Defendants have to prove is an arguable defence.  But the burden rests on the Defendants to prove the arguable defence, and I should consider the defence raised in so much of the facts that are not disputed, or cannot be disputed.

56.  In conclusion, I found in favour of the Plaintiff and that judgment should be entered for the Plaintiff.  The last issue is whether I should enter final judgment.  I refer again to Cheung Ching Ping’s case.  The Court of Appeal ordered interlocutory judgment be entered instead of a liquidated judgment.  Mr. Justice Rogers held that there must be sufficient doubt as to payment of the sum equal to the initial deposit is a genuine pre-estimate of the loss likely to be suffered by the purchaser, notwithstanding that the initial deposit represents some 3% of the total purchase price.

57.  But in the said Appeal Case, the issue of penalty has been raised by the vendor.  No defence of penalty has been raised in the affidavits of the Defendants or the draft defence and counterclaim, or the submission of counsel.  I do not believe I need to take the issue of penalty into account and I grant judgment as claimed in the Order 14 summons against the 1^st Defendant. 

58.  But for the 2^nd Defendant, he is liable to all loss and fees suffered by the Plaintiff.  It is at least arguable that the liquidated damages clause between the Plaintiff and the 1^st Defendant is not binding upon him.  Accordingly, I order interlocutory judgment for damages to be assessed should be entered against the 2^nd Defendant.  I see no reason why the loss could be higher than $495,000 which is the liquidated damages agreed and recovered from the 1^st Defendant.

59.  I have raised with Mr. Lam why this action for liquidated damages of $495,000.00 was brought in the High Court.  He submitted that the Court has to determine if the termination of the Provisional Agreement is valid and the case has to be brought in the High Court. 

60.  Reading the Statement of Claim, there is no claim for rescission of the Provisional Agreement or declaration that the Provisional Agreement has been terminated.  The only claim is for the liquidated damages.  Section 32 of the District Court Ordinance provides that the District Court has jurisdiction to hear and determine any action founded on contract, quasi-contract or tort where the amount of the plaintiff’s claim does not exceed $1,000,000.00.  Since the claim does not exceed $1,000,000.00, I see no reason why this action should not have been brought in the District Court.

61.  I give an order nisi in favour of the Plaintiff against both Defendants for cost up to and including the Order 14 application at District Court Scale to be summarily assessed by me on paper, such order to become absolute within 14 days.  Upon order absolute, I would proceed to assess the cost of the Plaintiff, based on the statement of costs submitted by the Plaintiff on paper.  I give certificate for counsel for the Order 14 hearing.

62.  Finally, I thanks both counsel for their assistance.