XCHRX TANG OI MING ANGELICA AND ANOTHER v. SUNNY FUND INTERNATIONAL LTD.

HCA 4030/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. I have before me an application made by the Plaintiffs in terms of Order 86 of the Rules of the High Court, Cap 4, for judgment by way of an order for specific performance, the application being founded on the contention that the Defendant has no defence to the action. The application has been opposed by the Defendant which has argued that there is an issue or question in dispute which ought to be tried.

The issue in contention

2. In September 1996, the Defendant offered for sale a number of residential apartments still under construction in a development known as Silverwood. To assist the public, a number of different payment options (A to E) were offered, these options being set out in a brochure issued by the Defendant.

3. The Plaintiffs agreed to purchase an apartment ('the property'), choosing payment option D in terms of which they were required to effect payment in 3 stages:

1. payment of 10% of the purchase price as a deposit;

2. payment of 70% of the purchase price within one month of signing the formal agreement of sale and purchase, and

3. in respect of the balance of 20% of the purchase price (a sum of $773,000), by 24 equal monthly instalments, the first instalment to be paid upon the granting of the property's occupation certificate.

4. There has been no issue as to the payment of the deposit of 10% or the payment of 70%, this second sum being obtained from a lending institution on the security of a first mortgage. It is in respect of the balance of 20% that the parties are now at odds.

5. It is the Plaintiffs' case that it was agreed in terms of both the provisional and formal agreements that the balance of 20% would be paid in 24 equal monthly instalments without the need for any form of security. Defendant, however, contends that, prior to the drawing up of the written agreements, there was an express oral agreement reached between the parties that the 20% balance would be secured by means of a second mortgage executed by the Plaintiffs at their expense in favour of Defendant. The Defendant, therefore, seeks rectification of the formal agreement in order to include this provision which was omitted by reason of the mutual mistake of the parties. In the alternative, Defendant contends that the oral agreement amounted to an independent collateral agreement which Defendant is entitled to enforce by way of counterclaim.

The written agreements

6. The provisional agreement is a standard form agreement. However, it contains a hand-written clause in Chinese characters which, translated, reads as follows:

'The balance of the purchase prince of $773,000 is to be paid according to payment method D by instalments to the Developer (table attached). The Developer promises that if the bank specified cannot provide a mortgage loan for 70% of the purchase price to the above mentioned purchaser, the purchaser is entitled to cancel this transaction and to have the deposit back (with interest). Apart from this, both parties shall proceed with the transaction in compliance with the conditions in the provisional agreement for sale and purchase.'

7. Nowhere in the provisional agreement is there any reference to the balance of 20% being secured by a second mortgage.

8. The formal agreement of sale drawn up by Defendant's solicitors and dated some two weeks later directs in Schedule 4 how the purchase price of the property is to be paid. In respect of the balance of 20% it states the following:

'(iv) HK$773,000 being the balance of purchase price shall be paid within 14 days of the Issuance of Occupation Permit in accordance with the payment method D provided by the Vendor.'

9. Both the provisional agreement and the formal agreement, therefore, state that the balance of $773,000 is to be paid in accordance with the payment method offered by the Defendant which is detailed in its brochure.

Defendant's brochure

10. As I have said, 5 payment methods were set out in the brochure. On the question of a second mortgage being executed in Defendant's favour (in the event of a purchaser choosing a method of payment which made that necessary) there is only one paragraph in the brochure which speaks of a second mortgage. Translated, that paragraph reads:

"(ii) 20% of the property price, the arrangement would be that the Developer would provide a second mortgage, the purchaser may obtain the benefit of interest and repayment exemption for the first two years, the purchaser only being required to make repayment to the developer by 24 instalments in a two-year period starting from the first month of the third year; namely, the first day of 25th month.'

11. While, therefore, there was mention of a second mortgage in the brochure, in my judgment, the probabilities indicate that it related not to payment method D but rather to payment method E, the final method described in the brochure. I say this for the following 2 reasons:

12. First, each payment method other than the final one (method E) ends with a full shop. The final method, however, concludes at the bottom of the page with a semi-colon and then at the top of the next page commences with 2 sub-clauses of which (ii) cited above is the second.

13. Second, the method of paying the 'secured' 20% in (ii) speaks of the payments commencing after the expiration of a 2-year period while payment of the 20% balance under method D is stated as commencing on the granting of an occupation permit.

14. However, my comments in regard to the contents of the brochure are made with caution. I say so because I have not received a translation of the whole brochure and no certified translation of those extracts which I have cited. I cannot, therefore, discount the possibility that at trial the Defendant may be in a position to argue (with merit) that the mention of the second mortgage in the brochure is not as unconnected to payment method D as I have supposed. At this time, therefore, without a full, certified translation, I must accept that the interpretation of the contents of the brochure is a matter for trial.

Defendant's evidence in opposition

15. Defendant's property manager has affirmed that she conducted negotiations with the Plaintiffs in respect of the purchase of the property. In particular, the manager has said that prior to the drawing up of the provisional agreement, she advised Plaintiffs orally that under payment method D the final 20% would have to be secured by a second mortgage. This, she said, was emphasised to be a condition precedent, a fact which the Plaintiffs understood and accepted. In this regard, inter alia, the manager said:

'... I can recall it clearly despite it took place more than a year ago because the terms of the sales brochure was not clear enough to convey the requirement that a 2nd legal charge must be executed by the purchaser in favour of the Defendant under Payment Method D. I explained it to all the potential purchasers throughout the whole sales promotion period and thus the meaning, effect and consequence of the said Term was brought to the attention of all potential purchasers including the Plaintiffs herein.'

16. Suffice to say that the Plaintiffs deny any such representations being made to them by the property manager. It is their contention that there never was any discussion concerning a second mortgage and they certainly did not agree to any such mortgage.

17. While the property manager's allegations may be open to criticism in several salient respects, I cannot say that they are so inherently incredible as to defy belief. In short, in my judgment, the property manager has raised material issues of fact which are in dispute and can only be resolved at trial.

18. But would the extrinsic evidence of the property manager be admissible into evidence in the first place? That matter has not been argued before me in any depth by counsel for the Plaintiffs and I believe justifiably so.

19. In terms of the Conveyancing and Property Ordinance, Cap 219, contracts for the sale of land, to be enforceable, are required to be in writing. The parol evidence rule provides that oral evidence is not admissible when it is tendered for no other purpose than to contradict, vary, add to or subtract from the contract as contained in writing. However, the interests of justice allow for exceptions to the rule. Where mutual mistake is alleged (as in the present case) and rectification sought, the parol evidence rule does not apply. In this regard, see Murray v. Parker (1854) 19 Bear. 305, 308 per Lord Romilly M.R.:

'In matters of mistake the court undoubtedly has jurisdiction, and though this jurisdiction is to be exercised with great caution and care, still it is to be exercised, in all cases, where a deed, as executed, is not according to the real agreement between the parties. In all cases the real agreement must be established by evidence, whether parol or written ...'

20. The same exception applies when it is alleged that there has been an independent collateral contract.

21. In the matter now before me, the Defendant has pleaded mutual mistake justifying rectification and alternatively an independent collateral contract. Both allow for the admission into evidence of the oral testimony of the property manager.

The Order 86 application

22. In the circumstances, while this was not an easy matter to decide, I am satisfied that there are issues in dispute which can only be resolved at trial and accordingly the application by the Plaintiffs in terms of Order 86 for judgment for specific performance must be dismissed.

Costs

23. In the circumstances of this case, which has not in any respect been clear cut, I am of the view that the only equitable order in respect of costs would be one of costs in the cause.

Postscript

24. Although I have dismissed the Plaintiffs' application for summary judgment, I would be loath to see the continuing litigation frustrate the Plaintiffs from taking occupation of the property thereby mitigating any loss. I appreciate that Defendant does not wish to lose its security before a second mortgage is registered but it would seem to me to be within the ingenuity of the parties to find a way which will allow completion, mitigate loss and yet retain some security for the Defendant pending a resolution of this matter. It is not for me to advise the parties but perhaps a caveat registered against title may supply Defendant with adequate security.

25. It is normal in these instances for the court to give directions in order to bring the matter to trial. But in light of my comments, I would like to hear the parties on what can best be done. If they can agree then an order by consent can be filed. If not, the matter can be set down before me at 9:30 in the morning (it should take no longer than half an hour) for the parties to be heard and directions given.

Orders

26. My orders therefore are as follows:

1. That Plaintiffs' application made in terms of Order 86 be dismissed.

2. That costs be in the cause.

3. That the parties be heard on consequential directions.

(M.J. Hartmann)

Judge of the Court of First Instance