DR. MA CHUNG HO KEI v. QUEEN'S ELECTRONIC MANUFACTURING CO LTD

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JUDGMENT

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Fuad, V.-P. (giving the judgment of the Court):

1. This is an appeal by Queen's Electronic Manufacturing Company Limited against an order made on 8th June 1991 by Deputy Judge Jerome Chan in favour of Dr. Ma Chung Ho Kei on an application for summary judgment under RSC O.86, in effect sanctioning the rescission by her of an agreement to sell certain property registered in her name in the Tsuen Wan District Land Office as lots 91, 92, 382 and Extension to 382 in Demarcation District No. 399 to the Company.

2. Under an agreement dated 25th March 1991 Dr. Ma ("the vendor") agreed to sell, and the Company("the purchaser") agreed to buy, the property for $5,500,000. Upon the signing of the agreement Dr. Ma was paid $550,000 as a deposit. Completion was to take place on Saturday 6th April 1991 (clause 3) during business hours, i.e. 9.30 a.m. to 12.30 p.m. (clause 17(a) (ii)) and time was made of the essence (clause 5).

3. The parties agreed (clause 8) that subject to certain reservations, the covenants and conditions set out in Part A of the Second Schedule to the Conveyancing and Property Ordinance, Cap. 219 would be incorporated into the agreement. Clause 7(2) of Part A is in the following terms -

4. Clause 16 of the agreement required any requisition to be made within 7 days after delivery of the title deeds. However, the requisition which gave rise to the controversy dividing the parties was made on the purchaser's behalf by their solicitors by letter dated 23rd March 1991, two days before the formal execution of the agreement. They were in a position to do this because the vendor’s solicitors had sent them certain title deeds and documents relating to the property on 20th March. Paragraph 2 of the requisition letter was as follows -

5. That letter was followed by a reminder dated 3rd April 1991. In that letter, the purchaser's solicitors drew attention to the fact that the completion date (6th April) was approaching.

6. Meanwhile, on 28th March 1991, the vendor's solicitors had engaged a professional search company trading as "MG Services" to make a search in the Tsuen wan District Land Office for the documents (other than the Certificates of Compliance) which were the subject of the requisition. On 3rd and 4th April they enquired about the position and were told by MG Services that the requested documents were "not yet available" (on 6th April they were told that they were not available).

7. Also on 4th April, the vendor's solicitors wrote to the purchaser's solicitors referring to a telephone conversation between two members of their firms earlier in the day. They went on to say –

8. On the same day, the purchaser's solicitors responded as follows -

9. At 12.26 p.m. on 6th April 1991, the vendor's solicitors received the following letter from the purchaser's solicitors –

10. At 1 p.m. on the same day (half an hour after the time for completion had expired) the purchaser's solicitors received a letter from the vendor's solicitors, in these terms -

11. On 8th April 1991, the purchaser's solicitors addressed the following letter to the vendor's solicitors :

12. The vendor's solicitors responded to that letter by theirs of 10th April 1991 in which they denied that their client had failed to complete as alleged. They said:

They enclosed a cheque for $550,000 being the refund of the deposit and added that any legal proceedings would be vigorously contested.

13. On 12th April 1991 the purchaser's solicitors responded by returning the draft Cancellation Agreement they had been sent, and the cheque. They said that the purchaser did not accept Dr. Ma's annulment and threatened legal proceedings "shortly".

14. On 18th April 1991, the purchaser's solicitors sent the following letter to their opponents –

15. The deputy judge had before him an affirmation dated 21st May 1991 made by an employee of MG Services confirming that he had received instructions to search for the documents mentioned in the requisition. He said that it would normally have taken only a few days for the Land Office to supply certified true copies of the documents requested. He mentioned telephone calls from the vendor's solicitors asking for the documents, on 3rd, 4th, 6th and 8th April, and how each time he had had to say that the documents were "not yet ready". It was, he said, on or about 10th April that he had learned from the Tsuen Wan District Office that a certified true copy of the Block Lease would be ready shortly but that the New Grants could not be found. He obtained a copy of the block Crown Lease on 13th April which he then delivered to the vendor's solicitors. By letter dated 17th April the Registrar General (Land Officer) confirmed to the vendor's solicitors in writing that the relevant New Grants had been lost.

16. On 10th May 1991, Dr. Ma issued a writ against the Company, indorsed with a statement of claim in which the material facts are averred. She claimed, inter alia, declarations, that -

17. The deputy judge also had before him the Company's draft defence and counterclaim, together with an affirmation verifying the facts averred in it, made on 23rd May 1991 by Daniel Kwan, one of their directors. This was the basis upon which they sought to show cause under O.86, r.4

18. The purchaser's case was that the vendor had been reckless in entering into the agreement because she had done so with notice of the requisitions and without making any or any adequate enquiries or having any or any adequate regard to her ability to comply with them. She was therefore not entitled to rely upon clause 7(2):

19. They denied that the vendor's solicitors letter of 6th April 1991 amounted to a valid notice to rescind in accordance with clause 7(2), since it contained no reference to that clause. They also denied that the vendor was unable, or upon any reasonable ground unwilling, to comply with requisitions.

20. The purchaser maintained that, on the contrary, certified copies of the Block Crown Lease and Certificates of Compliance were at all material times obtainable by her upon reasonable notice, and after only reasonable delay by the relevant Government offices. In the alternative they contended that in respect of the New Grants No. 2231 and 2401 (even if disclosure of a notification of their loss by the relevant Land Office would not have amounted to compliance) the vendor and her advisers had failed to answer the requisition in respect of the New Grants in such a way as to afford the purchaser a fair and informed opportunity to decide whether to waive or to insist upon their requisition.

21. The purchaser also said that orally by telephone and by letter on 4th April, the vendor's solicitors had offered to undertake production of all the documents referred to in the requisition and by so doing had implicitly represented that the vendor was able and willing to make them available within a reasonable time.

22. It is then averred that the purchaser's solicitors had acted in reliance upon that representation by insisting upon the requisitions and, if, contrary to their contention, the vendor would otherwise have been entitled to rely upon clause 7(2), they had done so to the detriment of their client and the vendor could not now be heard to say that she was unable, or on any reasonable ground unwilling, to comply with the requisitions.

23. The purchaser also contended that the vendor's invocation of clause 7(2) was not based upon any true inability (or upon any reasonable unwillingness) to comply with the requisitions but was designed to enable her to take advantage of a rising market. Dr. Ma had acted unreasonably and arbitrarily and in bad faith.

24. For these reasons, the purchaser said, the vendor was not entitled to give notice requiring withdrawal of the requisitions, nor to annul the sale in accordance with clause 7(2). The agreement remained in force and binding upon the parties.

25. The judge, after dealing with the arguments urged before him, observed that he was left in no doubt at all that there was no issue or question which ought to be tried, and that there existed no other reason for the matter to proceed to trial and so entered summary judgment in favour of the vendor.

26. The appellant Company complains that the judge had erred for a number of reasons. They say that there were triable issues as to whether (a) the vendor had acted unreasonably and (b) whether she had been guilty of "recklessness" on principles discussed in Selkirk v. Romar Investments Ltd. [1963] 1 WLR 1415, P.C. which deprived her of any rights she might have under clause 7(2). In his judgment the judge said he did not find these contentions tenable. He said that there was no evidence as to the course of negotiation leading to the delivery of the documents of title on 20th March 1991. No copy of requested documents had been delivered, and the requisition for certified copies had been made 2 days before the execution of the agreement. There was simply no evidence to suggest that Dr. Ma, or her solicitors, had been negligent, let alone reckless, in assuming that certified copies could be obtained from the Land Office. There was no evidence to suggest that they should have been alerted to the possibility of the loss of such documents at the Land Office.

27. It had been submitted to the judge that Dr. Ma had acted "unreasonably and arbitrarily and in bad faith". The judge took these matters together and said that not only was there a total absence of evidence in support of such bare allegations, but what evidence there was was wholly against any such contentions. He pointed out that when the Company had evinced an intention to waive the major obstacle in their requisition by their letter of 18th April 1991, an open offer had been made by Dr. Ma in the letter of 29th April to revive the sale. She had made no request for any increased price, despite the rising market as alleged by the Company. Mr. Edward Chan, who did not appear in the court below, rightly did not renew the mala fide allegation before us. We express some surprise that it was ever made.

28. The true principles, and the basis for them, relied upon by the purchaser in support of the case pursued in this appeal (that the vendor was not entitled to rely on clause 7(2) because the purported exercise of the power under that clause was unreasonable, and that the vendor was reckless in entering into the agreement) were re-stated by Lord Radcliffe giving the judgment of the Privy Council in Selkirk's case, at pp.1422-1423:

29. The purchaser contends that the vendor had acted recklessly in entering into the agreement on 25th March 1991 with the 6th April completion date, because –

30. The evidence produced by the vendor to the judge to demonstrate that she could not comply with the requisition by the date of completion was not controverted and is to be found in her own affirmation of 21st May 1991; in the affirmation of Mr. Ho, the search clerk of MG Services dated the same day; and in the affidavit of 23rd May sworn by Mr. Vincent Ko, the senior partner of the firm acting for the vendor in the transaction. It is not perhaps particularly surprising that Dr. Ma did not have copies of the Block Crown Lease, or originals or copies of the New Grants, because she and her brother had been left the property by their late mother's will in equal shares (she bought out her brother's share, later). Mr. Ko's affidavit also shows that in the government records the New Grants and Certificates of Compliance are not in fact available.

31. On examining the evidence which was before the judge, we are of the opinion, in agreement with him, that it fell short of establishing a triable issue on the question of alleged recklessness on the part of the vendor. Judging the vendor's position at the time the contract was entered into, we conclude that her solicitors had no reason to expect that there would be any difficulty in obtaining the documents requested (and, if appropriate, Certificates of Compliance) "in a few days" and before the date for completion. They cannot be criticized for employing a search firm to perform what was reasonably expected to be a very routine task on their behalf. There is no evidence to suggest that the solicitors would have been more successful than MG Services had they instructed one of their own staff to do the search. The solicitors could not reasonably have foreseen any difficulties in carrying out their duties in relation to a title that had been undisturbed since April 1965.

32. The purchaser says that the evidence revealed an "unreasonable exercise of power" by the vendor. In Selkirk, Viscount Radcliffe said at p.1424 -

Later, at p.1425, Viscount Radcliffe observed that while a vendor has to be reasonable "he does not have to be beyond criticism before he can exercise his right of rescission".

33. The purchaser submits that when the vendor's solicitors instructed MG Services on 28th March they were given only 4 and a half working days to perform their task; thus three and a half working days had been wasted. Despite the urgency thus created, they had not even told MG Services of the completion date, nor had they asked the search to include Certificates of Compliance.

34. We are quite unable to accept the submission that the evidence suggested that if the vendor's solicitors had themselves conducted the search, or had asked MG Services to do so on an urgent basis, they would have been able to discover the availability of the Block Crown Lease, and the fact that the New Grants had been lost, much earlier.

35. Relying on Greaves v. Wilson 27 LJ Ch. 546, it is contended on behalf of the purchaser that the vendor's duty was to deal with the requisitions separately. Only then could it be said that she had acted reasonably. If indeed the certified copies of the Block Crown lease had been available, the vendor should have acceded to that part of the requisition and informed the purchaser that it was only the New Grants (or certified copies of them) which she was unable to produce. The purchaser would then have been in a position to decide whether to insist on the production of the New Grants. It was conceivable that if the block Crown lease had been forthcoming, the purchaser might have waived the production of the New Grant. The vendor had thus acted unreasonably by simply saying categorically in her letter of 6th April that she did not have the documents requested and was therefore unable to comply with the requisitions.

36. We mean no disrespect when we say that we find these arguments quite unreal in the circumstances of the present case. The fact is that a certified copy of the Block Crown Lease was still not available so far as the vendor's solicitors knew when they wrote that letter. The matrix of facts in Greaves v. Wilson was quite different.

37. It is true that, with hindsight, it can be said that the vendor's solicitors might have been wiser to look elsewhere for the requested documents after failure had been reported by MG Services. They might not be beyond criticism on this score but we do not think that the vendor can arguably be held to have acted so unreasonably as to deprive her of her contractual right to rescind.

38. The purchaser also submits that the judge should have found that there was a triable issue as to whether the purported annulment of the agreement on 6th April was valid.

39. The judge accepted (and it was common ground) that the sentence with which paragraph 111 of Vol. 42 of Halsbury's Laws of England, 4th Edition begins, is a correct statement of the law - that where the agreement allows the vendor to rescind upon the purchaser insisting upon, or persisting in any requisition "there must be (1) an objection by the purchaser, (2) inability or unwillingness on a reasonable ground on the part of the vendor to remove the objection, (3) communication to the purchaser of the existence of this unwillingness or inability, and (4) insistence by the purchaser upon his objection notwithstanding this communication (from the judgment of Cairns, L.J. in Duddell v. Simpson (1866) LR 2 Ch App 102 at p.109).

40. It must, we think, be appreciated that Cairns L.J. 's statement of the law in Duddell's case must not be applied as if it were a statute. It seems to us that a fair reading of the two letters dated 4th April, one from each of the solicitors concerned, makes it abundantly clear that the purchaser's solicitors knew that the requested documents were not then available and that they would only be sent once they were received from the District Land Office. In view of the time element, with 5th April being a public holiday, it was highly unlikely that the requested documents could be produced to the purchaser before completion (12.30 P.m. on 6th April). And it seems that this is how the purchaser's own solicitors understood the position (see para. 1 of their letter of 4th April).

41. We are unable to agree that the letter from the purchaser's solicitors dated 6th April, properly construed, was merely to place on record (a) the vendor's failure to comply with the requisition before completion; (b) the vendor's failure to complete; (c) the purchaser's ability to complete, and (d) the purchaser's willingness to complete if the documents, were provided. We entertain no doubt that by this letter, sent only 4 minutes before the deadline for completion, the purchaser was saying that he was only willing to complete if the requisitioned documents were produced. This, in our view, was clearly an insistence of the kind envisaged by Cairns, L.J. in Duddell v. Simpson. This insistence was persisted in by their letter of 8th April - it is plain that the failure to complete was due entirely to the fact that the purchaser was standing on his rights regarding the documents he had requisitioned and here he was. indicating that he was about to institute proceedings.

42. The purchaser also submits that the vendor's letter of 6th April was not a clear and unequivocal notice of rescission. The contention that there had been no effective annulment because the intimation had been made after the time for completion had passed was abandoned before us. Mr. Chan argued that the letter in question merely indicated what the solicitors' instructions then were. By saying "our client reserves all her' right in this matter" in the final paragraph, it is submitted that the vendor was leaving her options open. Mr. Chan asks, if this were a letter to rescind, what rights could Dr. Ma be seeking to reserve, the contract having come to an end? He contended that a fair reading of tile letter must be that she was reserving her rights (i) to serve a notice to rescind if the Company still insisted on the production of the documents before completion or (ii) to enforce the contract.

43. Of course, the vendor's letter of 6th April could have been better worded, but we think that Mr. Chan is reading too much into its final paragraph. We understand that letter to contain a notice of annulment which would not be relied upon if the relevant requisitions were withdrawn "forthwith". If there had been any doubt about the matter this was resolved by the vendor's letter of 10th April. If any doubts still remained, they were removed by the institution of the vendor's action.

44. We have reached the conclusion that the vendor was entitled to the relief she had sought under O.86. On the material before him, the judge was justified in refusing the purchaser leave to defend. The appeal must therefore be dismissed and, in handing down this judgment, we make an order nisi that the appellant Company pay the costs of the appeal.