TAO QIN v. HO WAI LEUNG

HCA 1336/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1336 OF 2005

____________

____________

_______________

J U D G M E N T

_______________

1.  This is a conveyancing dispute arising out of the sub-sale and purchase of a residential flat in a large uncompleted non-industrial development at Sai Kung.  The defendant was buying the flat from the developer and selling it on to the plaintiff.  A dispute arose over requisitions raised by the plaintiff’s solicitors, and completion did not take place.

2.  The plaintiff issued proceedings in which she claims for a declaration that the defendant has failed to prove his title, for specific performance and other remedies.  The defendant counterclaims for declarations that the plaintiff wrongfully repudiated the agreement between the parties and that the defendant is entitled to forfeit the deposit paid, as well as for damages and an order for vacation of the registration of the agreement.

3.  Before me, the defendant applies by summons under Order 14 Rule 1A of the Rules of the High Court for a determination of the following questions of law or construction :

(1) Whether the requisitions raised by the Plaintiff in her solicitors’ letter dated 26 May 2005 (“the Requisitions”) were necessary or proper requisitions;

(2) Whether the Requisitions were raised by the Plaintiff within a reasonable time or sufficiently long in advance of the scheduled completion date;

(3) Whether the Defendant has by virtue of Clause 6 of the written sub-sale and purchase agreement dated 10 December 2004 (“the Agreement”), properly construed, sufficiently or satisfactorily answered the Requisitions by his solicitors’ letter dated 27 May 2005 with enclosures therein mentioned.

(4) Whether the Defendant was entitled to reject the tender of purchase monies by the Plaintiff for the purpose of completion on 30 May 2005 on the ground that the scheduled date of completion has passed.

4.  In addition the defendant applies for final judgment on his counterclaim if either of the first two questions is answered in the negative, and/or if either of the second two questions is answered in the affirmative. 

The Facts

5.  On 29 December 2003, the defendant entered into a Principal Agreement with the MTR Corporation Ltd (“MTRC”) for the sale and purchase of the Property, a flat in the Residence Oasis development in Tseung Kwan O.  On 20 October 2004, the plaintiff and the defendant entered into a provisional agreement, and on 10 December 2004 they entered into a formal agreement (“the Agreement”) for the sub-sale and purchase of the Property.  The purchase price was $3.55 million.  The plaintiff paid deposits totalling $355,100.  The balance was to be paid on or before the date on which the defendant was required to complete under the principal agreement, as notified by the defendant on his receipt of the notice of completion issued by the MTRC.

6.  The Agreement provided, by clause 6.1, that the vendor shall prove title in accordance with section 13 of the Conveyancing and Property Ordinance.  Clause 6.2 further provided :

“For the purpose of approving the Vendor’s title, the Purchaser shall accept copies of such title deeds and documents which do not relate exclusively to the Property provided that the Vendor’s solicitors shall on completion give an undertaking to deliver certified copy of such title deeds and documents to the Purchaser’s solicitors within 7 days of their receipt from the Head Vendor’s solicitors.”

Clause 13.1 provided that time was of the essence.

7.  The defendant and the MTRC had entered into a sale and purchase agreement for the Property, dated 29 March 2003 (“the Principal Agreement”).  The Agreement was stated to be subject to and with the benefit of the Principal Agreement between the MTRC and the defendant, and that the defendant undertook to be bound by all the conditions of the Principal Agreement except where inconsistent or inapplicable.  Clause 13 of the Principal Agreement provided that such documents of title as related exclusively to the Property would be delivered to the purchaser, and that all other documents would be retained by the vendor who would if required, give a covenant for the safe custody, production and delivery of copies thereof.  Clause 18(1) of the Principal Agreement provided that on completion, the purchaser would either enter into a DMC with the vendor, or at the vendor’s option accept an assignment from the vendor subject to a DMC entered into with another purchaser or purchasers.

8.  The plaintiff’s solicitors were Messrs Gary Mak, Dennis Wong & Chang (“Gary Mak”) and the defendant’s were Messrs Deacons.  On 11 May 2005, Deacons sent Gary Mak a copy of the developer’s notice of completion, giving a completion date on or before 27 May 2005.  That day was a weekday.  Clause 5.3 of the Agreement provided for completion to take place between 9 a.m. and 2 p.m. on a weekday, so the deadline for completion was accordingly 2 p.m. on 27 May.

9.  Deacons had sent a first batch of title documents to Gary Mak on 14 April 2005, and on 20 May 2005 they sent a second batch.  This batch included a certified copy of a letter from the Lands Department dated 7 March 2005 approving the Deed of Mutual Covenant (“DMC”).  Neither batch included the DMC itself.

10.  On 26 May 2005, a conveyancing clerk at Gary Mak telephoned the handling solicitor at Deacons and asked for postponement of the completion until 30 May.  This was refused.  On the same day, Gary Mak at 17:23 hours (according to the fax machine) sent by fax the letter which is the subject matter of the summons, in the following terms :

"We refer to your recent letter to us notifying us to complete the purchase on 27^th May 2005.

We wish to point out that as the relevant title deeds were only sent to us on 21^st May 2005, pursuant to the decision in Yeung Sau Chuen Sammy v Chung Chun Ting (M.P. 4080/92), our client is entitled to a reasonable time being at least 7 working days in which to peruse the documents and prepare for completion.  This will end on 30 May 2005.

We are therefore instructed to give you notice that our client is entitled to and intends to complete on 30th May 2005.

Please confirm by return in writing that your client is ready and able to do so and we shall send you our draft Assignment and Undertaking letter for your approval accordingly.

Meanwhile, by way of raising requisition of title

1.    Please let us have a copy of the duly executed Deed of Mutual Covenant and Management Agreement for our perusal.

2.    A copy of the duly executed Assignment of Common Areas to prove compliance with paragraph (c) of the Deed of Mutual Covenant Approval Letter dated 7th March 2005.

We reserve our rights to raise further requisition on title.”

11.  The following morning, Deacons replied.  They noted the dates on which the two batches of title documents had been sent, and that no requisition had been raised until the last moment before completion.  They claimed that the case cited had no application and that the requisitions were raised out of time.  However, without prejudice to the defendant’s rights arising from that, they also noted that :

(1)     Copies of the DMC and Management Agreement were exhibited to the Statutory Declaration Memorial No. 575268, sent on 14 April.  As they had agreed to give an undertaking to send a certified copy of the registered DMC after completion (in a draft undertaking sent on 20 May 2005), Clause 6.2 applied;

(2)     The Approval Letter dated 7 March 2005 had been produced to prove compliance with the Government Grant.  Any conditions imposed on the MTRC and the Assignment of Common Areas (“ACA”) were unrelated to the defendant’s title, and therefore the request for production of the assignment of common areas had no basis.

Also without prejudice to the defendant’s rights arising from the late requisitions and as a good gesture only they enclosed copies of the DMC and ACA.

12.  The deadline for completion passed at 2 p.m. on the same day, 27 May 2005.  At 7:52 p.m., Gary Mak faxed to Deacons a draft assignment and a draft undertaking (in draft letter form), as well as a copy of a preliminary sale and purchase agreement, whereby the plaintiff had agreed to sell the Property on to one Daily Management Ltd, so as to enable the approval of the draft assignment.  Hard copies were delivered the next morning.

13.  On 28 May Deacons replied to the effect that :

(1)     Given the nature of the 2^nd batch of documents, sufficient and reasonable time had been given to the plaintiff to peruse them;

(2)     The plaintiff was not entitled to extension of time, for the reasons given;

(3)     The plaintiff had not tendered the balance of the purchase price;

(4)     The plaintiff’s failure to complete amounted to repudiation, which the defendant accepted, and

(5)     The deposit was forfeited.

14.  On 30 May 2005, Gary Mak wrote to Deacons tendering the balance of the price and enclosing the assignment, duly executed by the plaintiff against Deacons’ undertaking to, inter alia, provide copies of the DMC and ACA within 14 days.  Deacons returned this letter and its enclosures, and demanded immediate return of all title deeds and documents.

15.  On 9 June 2005, Gary Mak wrote to Deacons setting out reasons to support its contentions that the defendant had failed to show a good title on the completion date and that the plaintiff was entitled to postponement.  Deacons answered to the effect that they had no instructions to reply, and demanding return of the title deeds.  By then these were in the hands of the solicitors for Daily Management Ltd who claimed a lien over the title deeds unless that company’s deposit was returned, which claim Gary Mak rejected, and demanded return of the deeds.  Ultimately, in June 2005, Gary Mak returned all the title deeds to Deacons, and then advised Deacons that they had instructions to issue proceedings for specific performance.  

Issues

16.  In proceedings under Order 14A it is necessary first to decide on the suitability of adopting the procedure before adjudicating on the merits.  It has not been argued for the plaintiff that the procedure is unsuitable.  I accept that it is suitable.

17.  The issues are those set out in the summons, as questions of law or construction which require determination, and I will deal with them in the same order.

Necessary or proper requisitions

18.  It seems that there is no real argument that the requisitions were necessary and proper.  The DMC and the ACA are documents of title.  The development was subject to the Consent Scheme.  It was a condition of the Land’s Department’s approval of the DMC and Management Agreement contained in its letter to Deacons dated 7 March 2005 that the DMC be in the approved form, as per the draft appended to that letter.  It was also a condition of approval that the ACA be executed and registered within one month of the execution of the DMC.  It is true that the draft DMC appended to the Statutory Declaration was one of the documents contained in the first batch but Gary Mak had not seen copies of either executed document.

Were the requisitions raised in time?

19.  The Agreement contains no time limit for the raising of requisitions on title.  It would therefore be necessary to imply a term that requisitions must be raised within a reasonable period.  In assessing such period the court would take into account all matters relevant to completing the sale and purchase agreement which both parties are, or may objectively be aware of at the time of entering into the agreement; see Kensland Realty Ltd v Whale View Investment Ltd & Anor [2002] 1 HKLR 87 at 109H.

20.  The schedule for completion here was a tight one.  By Clause 5.2 of the Agreement, completion was to take place on or before the date on which the vendor was to complete under the Principal Agreement, which was within 14 days of the notification to the vendor by the head vendor that the latter was in a position validly to assign the Property to the vendor.  By Clause 5.3, the vendor was required, within 2 days of receipt of that notification, to notify the purchaser’s solicitors of it.  In fact, notice was given on 11 May, allowing 16 days for completion; but the Agreement contemplated a schedule of as little as 12 days.

21.  Clause 6.3 contained an escape clause for the vendor.  If the purchaser made a requisition which the vendor was unable or unwilling to answer or comply with, the vendor could annul the sale on giving five days’ notice in writing.  This would indicate that the parties contemplated that any requisitions should be made at least five days ahead of the completion date.

22.  It is difficult to see why Deacons did not send the second batch of documents earlier.  All those documents are dated well before 11 May 2005.  Indeed the DMC and ACA were executed on 25 April 2005 and it is difficult to see why copies of those documents could not have been included in the second batch.

23.  That said, I do not see that it could be right to contend, as the plaintiff’s solicitors did, that a reasonable time for requisitions should be seven days from receipt of the second batch of documents.  Perusal of the documents supplied, in particular the approval letter of 7 March 2005, would immediately show that the DMC and the ACA were missing from the bundle.  Yet Gary Mak took no action until the night before the completion deadline.  They could have objected to the late delivery, or have stated that they were left with insufficient time to prepare for completion; but they did not. 

24.  I note from the affirmation of Mr Dennis Wong, the principal partner in Gary Mak, that normally a developer will give indulgence to a purchaser of newly completed properties by allowing later completion on payment of additional interest, and that there are provisions for this in the Principal Agreement at Clause 3(4) and the Agreement at Clause 4(3).  Mr Wong also says that the defendant completed his own purchase on 30 May, and not 27 May; so, he says, there was realistically no immediate urgency to complete on 27 May.  That may be so, but the fact is that by Clause 13.1, time was of the essence, and the clauses referred to give the discretion entirely to the vendor, in each case.  The plaintiff could not therefore be in any position to demand extension of time.  It would be necessary, on receipt of the second batch of documents, for Gary Mak’s staff to take immediate action to see if requisitions needed to be made, rather than waiting until immediately before completion.

25.  It is argued for the plaintiff, and I accept, that the fact that Deacons responded to the requisitions, although on a without prejudice basis, on 27 May shows that they realised the substantive merits of the requisitions and had no difficulty in providing the copy documents required.  This also means that, if Gary Mak had made the requisitions earlier, they could have been answered at once.  Now maybe, if the DMC had then been provided without plans, which is a complaint raised in argument on the plaintiff’s behalf, further time would have been needed to get the plans, but there is nothing to show that, if the requisitions had been made within a couple of days after the receipt of the second batch of documents, completion could not have taken place on the due date; for there is evidence that the plaintiff could have funded the purchase herself, without waiting for her funds coming from the sale on to Daily Management Ltd.

26.  I conclude that the requisitions were not raised within a reasonable time or sufficiently far in advance of the scheduled completion date.

Did the defendant sufficiently or satisfactorily answer the requisitions?

27.  By clause 6.2 of the Agreement, the plaintiff was required to accept, for the purpose of approving the plaintiff’s title, plain rather than certified copies of documents not exclusively relating to the Property, subject to an undertaking to deliver certified copies later.  The DMC and the ACA were such documents.  The plaintiff asked for copies on 26 May, after office hours; and those copies were supplied, the next morning at 10:43 a.m.  It cannot be said that the defendant was dilatory in supplying the documents.

28.  It is argued for the plaintiff that the copy DMC was incomplete, because it did not include the plans.  However, the contents and form of the DMC, under the Consent Scheme, had to be approved by the Lands Department.  Production of a copy of the executed DMC would necessarily show that it and the plans attached to it had been approved.  In any event, by Clause 18 of the Principal Agreement, the DMC was required to follow closely the draft attached to the Statutory Declaration; and that was included in the first batch of documents delivered.  I do not, therefore, see that the absence of the plans means that the requisition in respect of the DMC was not sufficiently or satisfactorily answered.

29.  In any event, it is to be noted that on receipt of the DMC and the ACA, the plaintiff did not complain either that the DMC was incomplete in that it lacked the plans, or that the plaintiff had insufficient time to consider the contents.

30.  As to the ACA, it was needed to show compliance with the condition set out in the approval letter dated 7 March 2005.  Its production was sufficient to show that, and there would have been no need for the plaintiff to consider the contents.

31.  I conclude that the defendant sufficiently and satisfactorily answered the requisitions by his solicitors’ letter dated 27 May 2005 with enclosures therein mentioned.

Was the defendant entitled to reject the tender of purchase monies on 30 May 2005?

32.  It is argued for the plaintiff that as a matter of law, moral reason and common sense, the defendant was not entitled to reject the tender of the purchaser price on 30 May 2005.

33.  It is said that that the defendant was in the wrong, by having failed to produce the second batch of documents in good time, and by failing to answer the requisition satisfactorily.  I have dealt with these points above.

34.  It is also argued the plaintiff failed to discharge the obligation under section 13(1)(c) of the Conveyancing and Property Ordinance by failing to produce the power of attorney under which the DMC and ACA were executed.  This may be right but no objection was taken at the time.  The draft undertaking sent by Deacons on 20 May includes an undertaking to produce certified copies of, inter alia, the power of attorney.  This is echoed in the draft undertaking sent by Gary Mak to Deacons at 7:52 p.m. on 27 May.  It must be the case that the plaintiff impliedly waived any objection to this non-production.

35.  Time was of the essence of the Agreement.  Where time is of the essence, the time stipulated for completion must be strictly complied with and no equitable or other relief is granted simply because the purchaser is late; see Kensland Realty Ltd at para. 38, per Ribeiro PJ.

36.  Of course the situation would be different where the purchaser’s inability to complete came about because of the vendor’s default.  Here, I do not see that the defendant was in default or that, if he was, any such default caused the plaintiff to be unable to complete by 2 p.m. on 27 May 2005.  The simple fact is that the plaintiff did not complete on time, and this amounted to repudiation, which the defendant accepted, as he was entitled to.

37.  It may be that the plaintiff’s solicitors thought that there should be no urgency, and that indulgence would normally be given; and I have already adverted to the possibility of extension of time, at the vendor’s discretion, on payment of extra interest.  A four day delay does not seem to count for much.  But where time is of the essence, a delay of minutes in completion is commonly taken as repudiation.  Here, time was of the essence, and the plaintiff could not rely on any indulgence being granted.

38.  I conclude that the defendant was entitled to reject the tender of purchase monies by the Plaintiff for the purpose of completion on 30 May 2005 on the ground that the scheduled date of completion has passed. 

Conclusion

39.  The second question is answered in the negative and the third and fourth in the affirmative.  Accordingly the defendant will have judgment in terms of paragraph 2 of the Summons.  Since the judgment is to be handed down, the costs orders are nisi.