GREATNESS INTERNATIONAL LTD v. TOPMAN DEVELOPMENT LTD

HCA 247/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 247 OF 2008

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D E C I S I O N S

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Applications

1. There are 3 summonses before me.  However, to simply the matter, they boil down to if whether this Court should vacate the registration of certain instruments against the subject property.

Background

2. By a provisional agreement dated 6 January 2007, the Defendant agreed to sell and the Plaintiff agreed to buy a house at Sai Kung (“the Property”) at $41.6m.

3. On 24 January 2007, the parties entered into a sale and purchase agreement (the “SP Agreement”).  For the present purpose, the following clauses are noted.

“ 6.  Should the Purchaser fail to complete the purchase in the manner herein contained, the deposit shall be for feited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said Premises to anyone he thinks fit and the Vendor shall not sure the Purchaser for any liabilities and/or damages or to enforce specific performance.

  7.  Should the Vendor after receiving the 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 deposit together with a sum equivalent to the amount of the 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.”

4. The SP Agreement was then registered with the Land Registry.  The conveyance transaction should be completed on or before 6 March 2007.

5. Later, parties disputed on requisitions over the title of the Property and unfortunately, the transaction became fallen through.

6. On 6 March 2007, the Defendant’s solicitors wrote, inter alia, that:

“……

Since all your requisitions have been satisfactorily answered and good title of the Property also has been proved, please let us have your draft Assignment and draft undertaking letter for our approval sooner possible.”

7. The next day, it went further to forfeit the deposit of $4.16m.

“……

We place on record herein that we have not received from you or your client the payment of the balance of purchase price and the Assignment of the Property duly executed by your client on 6 March 2007.  In other words, your client has failed to complete the purchase in accordance with the Agreement.

In such circumstances, we are instructed by our client to given your client notice through your goodselve, which we hereby do, that our client hereby exercises its right under the said Clause 6 to forfeit all the deposit paid and to determine the Agreement accordingly.

……”

8. Then, on 20 March 2007, a Memorandum of Rescission was registered in the Registry by the Defendant’s solicitors.

9. The parties further had a dispute as to the return of the title deeds.  Eventually, the Plaintiff’s solicitors returned them on 11 May 2007.

10. Thereafter, it appeared that the matter was kept in abeyance for some 9 months’ time until the Plaintiff on 15 February 2008 commenced the present proceedings.  By its Endorsement of Claim, the Plaintiff asked for a declaration that the Defendant had failed to answer sufficiently or satisfactorily the requisitions raised, and as such had also failed to show or prove good title to the Property.  It also claimed return of the $4.16m deposit paid, interest, damages and costs.

11. The Plaintiff further registered the Writ herein with the Land Registry as lis pendens.

12. The Defendant contested the proceedings.  On 2 April 2008, it issued a summons to vacate the said Writ as well as the SP Agreement (collectively “the Instruments”).  This Court dealt with call-over of the summons on 9 April 2008, usual directions for filing and serving of affidavit evidence were given.

13. On 15 April 2008, pursuant to Order 20 rule 1 of the Rules of the High Court (“RHC”), the Plaintiff amended and filed its Writ by adding a further relief of “specific performance” of the SP Agreement.

14. It appeared that such amendment triggered the taking out of 2 further summonses by the parties.

(a)   By summons filed on 24 April 2008, the Defendant asked this Court to, among others,

(i)    strike out the Amended Writ for the Plaintiff’s failure to file and serve the Statement of Claim, and

(ii)  disallow or strike out the relief of “specific performance” on the Amended Writ.

(b)   By summons filed on 8 May 2008, the Plaintiff requested for:

(i)    an extension of time of 7 days to file and serve its Statement of Claim, and

(ii)  leave to add the relief of “specific performance”, if necessary.

15. I heard the substantive argument of the matters on 16 May 2008.  Mr. Richard Khaw of Counsel acted for the Defendant and Mr. Robert Pang of Counsel represented the Plaintiff. Here are my decisions to the parties’ diputes.

Time to file/serve Statement of Claim or striking out for such failure?

16. With respect, the Defendant cannot be very serious about the striking out application on failure to file and serve the Statement of Claim.  No evidence has been filed in this respect.  There is no suggestion of inordinate and inexcusable delay on the part of the Plaintiff.  I have not been told any prejudice suffered by the Defendant.  In any event, I do not believe that this Court can be satisfied that the Plaintiff has no intention to prosecute its case.

17. I will allow the 7 days’ extension sought by Mr. Pang for his client to file and serve its Statement of Claim.

Leave to amend the Writ?

18. The Writ was amended pursuant to Order 20 rule 1 RHC before close of pleadings, and indeed, before the filing and serving of the Statement of Claim.  The amendment added a further relief claimed, i.e. specific performance.  It was related neither to the identity of party to the action nor the cause of action.  I therefore take the view that leave was not required and the Amended Writ stands good.

Vacating the registration of the Instruments and/or Striking out the relief of Specific Performance?

19. The vacating of the registration of the Instruments will affect the relief of specific performance.  I therefore will deal with them together, one after the other.

20. This Court has a wide discretion to vacate registration of instruments in the Land Registry under section 19 Land Registration Ordinance (Cap. 128) (“LRO”) and its inherent jurisdiction.

21. Section 19 LRO states that:

“The court or judge before whom any property sought to be bound is in litigation, may on the determination of the lis pendens, or during the pendency thereof, where the said court or judge is satisfied that the litigation is not prosecuted bona fide, or for other good cause shown, make an order for the vacating of the registration in the Land Registry of such lis pendens without the consent of the party who registered it, and may direct the party on whose behalf the registration was made to pay all the costs and expenses occasioned by the registration or the vacating thereof, including the costs of the application to vacate, or may make such other order as to such costs or any of them as to the said court or judge may seem just.”

22. The Hon. Bakhary J. (as he then was) in Ho Yau-kong v Ho Cheng Kwai-ying and others [1991] 1 HKLR 649 explained that:

“The formula ‘other good cause shown’ in s. 19 is unrestricted by any words of the statute.  It seems to me that the courts may, and should, approach it by reference to what they normally do when dealing with interlocutory injunctive relief, subject to this.  The position of somebody with a lis penden which he or she can register is stronger than that of someone seeking or seeking to maintain such relief.  First of all, the registration may be made without reference to a court and without the burden of having first to make out a case.  Secondly, I think it is right to be even more reluctant to vacate a registration than to refuse or discharge an injunction which would have similar effect.  That is my approach here.”

23. With these principles in mind, upon consideration of the evidence authorities and submissions before me, I have decided to allow the Defendant’s application to vacate the registration of the Instruments.

(a)   On balance, I find that the Plaintiff is not intending to seek specific performance at all material times.

(i)    The Plaintiff only issued the present proceedings some 9 months after the subject conveyance transaction had fallen through.  There is no evidence before me as to what the Plaintiff has done during such period.

(ii)  Not before the Defendant raised the question of vacating the Instruments, the Plaintiff had never mentioned the issue of specific performance.  There is no evidence before me to explain why the Plaintiff has decided to amend the Writ to include the relief of specific performance.  Mr. Pang only explained in his skeleton that it was “a simple omission”.  With respect, it is far from satisfactory.

(b)   The Plaintiff has not filed any or sufficient evidence to satisfy this Court that the Property is so unique that specific performance is needed because damages will be inadequate.  The Defendant only offered me the following from Mr. Pang’s skeleton:

“ 3.2    ……In the present case, the property concerned is a house in the New Territories, of a size sufficient to erect a swimming pool, and with a covered car park over 2,000 sq. ft. with underground servants’ quarters.”

(c)   Having taken into the above matters as well as the following correspondence between the solicitors, I am of the view that it is unlikely that this Court will grant the equitable relief of specific performance to the Plaintiff in the end.

(i)    Shortly after the commencement of the present proceedings, the Defendant on 20 March 2008 offered $10m as security to vacate the Instruments.  The Plaintiff did not reply and hence triggered the issuance of a summons on 2 April 2008.

(ii)  Then, on 10 April 2008, the Plaintiff’s solicitors asked:

“With a view to enabling us to advise our client as to the whether the money now stake-held by you is sufficient to satisfy our client’s claim at the end of the day, we shall be obliged if you would let us know the price at which your client currently offers to sell the subject property and whether there has been any offers from any potential purchasers, and if so, the details thereof.  No doubt you will agree that the information sought for is relevant information which should be put before the Court for its attention before a decision can be made one way or the other.

We shall be grateful if you would let us hear from you on the above by return in the hope that the current dispute can be resolved without a formal hearing.”

(iii)    The Defendant’s solicitors took the view that the formation requested was irrelevant and declined the same.

(iv)    The Plaintiff’s solicitors replied further on 15 April 2008.

“We refer to your letter of 10th April, 2008 and would like to reiterate the 2nd paragraph of our last letter which stated in clear terms that the information sought for is to enable us to advise our client as to the whether the money now stake-held by you is sufficient to satisfy our client’s claim at the end of the day.  Should the information provided by your client shows positive, our client of course could not insist on maintaining the registration of the Writ of Summons against the subject property.  In assessing whether the registration of the Writ in the Lands Registry should continue to remain, your client is required to show to the Court that the sum now stake-held by your firm is a right figure to compensate our client’s loss, if any.  On information now available to the Court, we are afraid that no one can tell one way or the other.  We confidently believe that your client must have such information.  Please review your position and let us have the relevant information as soon as possible in order that any unnecessary costs can be avoided.

By the way, we would like to take this opportunity to inform you that we are instructed by our client to amend the Writ in this action by adding a claim for specific performance of the subject sale and purchase agreement and to have the Amended Writ registered in the Lands Registry after the amendments in order to produce our client’s interest.

In view of the intended amendment, we shall be obliged if you would take your client’s instructions and let us know whether it still wishes to continue with the present application.  For your information, we are minded to advise our client not to claim for any costs if your client withdraws its application now.”

(v)  The Defendant’s solicitors maintained their views and said that:

“We also note your client’s intention to add to its claim the relief of specific performance.  Your client is fully aware of and should be properly advised that it is entitled to such relief because the agreement between our respective clients is such that neither party should be entitled to specific performance in the event that completion of the subject Property falls through.  You may care to review Clauses 6 and 7 of the Sale and Purchase Agreement entered into between our respective clients on 24th January 2007 in relation to the subject Property.

In the circumstances, should your client see fit to apply for leave to amend the Writ of Summons for the purpose of adding in a new cause of action for specific performance, it will be strenuously objected to by our client.  Our client will further apply to strike out the part of Writ of Summons relating to specific performance, if so required, with costs against your client.”

Out of the above, Mr. Khaw told me that it “starkly demonstrate a blatant attempt to obstruct Defendant’s application to vacate…”.  Probably, I do not need to go so far as suggested by him, but it certainly suffices for me to conclude that specific performance is unlikely to be awarded to the Plaintiff in the circumstances.

(d)   The property market fluctuates in Hong Kong.  The Defendant is intending to sell the Property.  There have been negotiations for sale of the Property and terms thereof included the vacating of the registration of the Instruments.

24. The heavy burden required to achieve in striking out is not disputed.  However, having decided to allow the Defendant to vacate the registration of the Instruments, it turns the striking out application of the relief for specific performance academic.  After the vacating the registration of the Instruments, the Defendant would be at liberty to dispose of the Property at any time.  It is therefore pointless to retain specific performance in the Amended Writ because the same will only tend to embarrass and delay the fair trial of the action.  I therefore will exercise my jurisdiction and/or discretion to strike out the relief of specific performance accordingly.

$10m sufficient?

25. The Defendant put up $10m in its solicitors to stakehold as security.  Particulars are:

“Return of Deposit	HK$4,160,000.00
Liquidated Damages for Breach (as per Clause 7 of the Sale and Purchase Agreement dated 24th January 2007)	HK$4,160,000.00
Costs of investigation of title	HK$100,000.00
Interest (say at 10% per annum from the date of the Writ to 15th February 2009, the notional date of trial)	HK$842,000.00
Costs	HK$600,000.00
	HK$9,862,000.00”
	(letter of 20 March 2008)

26. To these, the Plaintiff, as an alternative position, argued that it was not sufficient.  However, it has not put forward its own calculations.

27. Bearing in mind the said clauses 6 and 7 in the SP Agreement, the duty of mitigation on the part of the Plaintiff as well as the steps taken so far and possibly to be taken in future up to the trial herein, I believe that, on a gross sum basis, $10m is a sufficient security to protect the Plaintiff’s position.

Conclusion

28. In the end, I make the following orders.

(a)   In relation to the Defendant’s summons for vacating the registration of the Instruments:

Upon the Defendant having paid to its solicitors Messrs. So, Lung and Associates $10m to be stakeheld for the purpose of securing the Plaintiff’s Claim herein pending determination of the present proceedings or further order from this Court,

(1) The Registration of the Agreement for Sale and Purchase dated 24th day of January 2007 registered in the Land Registry by Memorial Number 07013001110070 in respect of All That Lot No.171 and Lot No.215 both in Demarcation District No.258, Tai Mong Tsai Road, Sai Kung, New Territories, Hong Kong (“the Property”) be vacated.

(2) The Registration of sealed copy Writ of Summons dated 15th February 2008 registered in the Land Registry by Memorial Number 08022003070183 in respect of the Property be vacated.

(3) Costs and expenses for preparation and registration of the memorials for application to vacate the registration of the aforementioned documents be costs in the cause.

(4) There is an order nisi that the Plaintiff shall bear costs of the application, including costs reserved and Certificate of Counsel for hearing on 16 May 2008, to be taxed if not agreed, in any event.

(b)   As to the Defendant’s summons filed on 24 April 2008:

(1) Paragraph 3 of the Amended Writ filed herein on 15 April 2008, i.e., the relief of specific performance of the Agreement, be struck out.

(2) There is an order nisi that the Plaintiff shall bear costs of the summons, including Certificate of Counsel for hearing on 16 May 2008, to be taxed if not agreed, if not agreed.

(c)   Finally, regarding the Plaintiff’s summons filed on 8 May 2008:

(1) The Plaintiff do have leave to file and serve its Statement of Claim within 7 days from the date hereof.

(2) There is an order nisi that the Plaintiff shall bear costs of the summons, including Certificate of Counsel for hearing on 16 May 2008, to be taxed if not agreed, in any event.