TEAM LEADER DEVELOPMENT LTD. v. TANG PAK CHUNG AND OTHERS

HCA 11746/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11746 OF 1997

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J U D G M E N T

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1. These proceedings arise out of an agreement for the sale and purchase of some 31 lots of land in Tsing Tam Village, Yuen Long, New Territories, entered into between the plaintiff as purchaser and the defendants as vendors on 16 October 1997, following a provisional agreement signed on 23 August 1997. The sale price of the land was agreed at $22,000,000.00 and, $2,200,000.00 having been paid by way of deposits, the balance of $19,800,000.00 was payable upon completion which was fixed to take place on or before 30 October 1997 between 9.00 a.m. and 5.00 p.m. at the offices of the 2nd defendant's solicitors, Messrs Anthony Y L Au & Co. It was a term of the agreement that time should be of the essence, that payment should be made, inter alia by a solicitor's cheque, and, under clause 5, "that vacant possession of the property shall be given to the purchaser on the actual day of completion".

2. It is the plaintiff's case that they were ready and willing to complete but the defendants were not able to give vacant possession at the relevant time, and that they were entitled to accept what they claim is the defendants' repudiation of the agreement and to recover the deposit paid and their costs of investigating title. The defendants contend that the plaintiff was neither able nor willing to complete, and in any event, vacant possession was available to be handed over to them at the relevant time.

3. Before looking at the question of vacant possession, it would be useful I think to deal with the issue of the plaintiff's ability and willingness to complete.

Able and willing to complete

4. The plaintiff is a subsidiary of the Henderson Land group of companies and is a shell company clearly set up to be the purchaser in this, or some similar transaction, with a paid up capital of $2.00 and other companies as shareholders and directors. It is not in dispute that Henderson was providing funds for this purchase, although on what basis is not clear, and had paid the deposit on its behalf. It is further not in dispute that Henderson had paid, again on behalf of the plaintiff, the sum of $20,481,387.00 to the plaintiff's solicitors on 30 October 1997, with a receipt furnished to the plaintiff for this sum and specifying that $19,800,000.00 was the balance of purchase price, $681,387.00 was costs, and the balance costs and disbursements on account. This was credited to the plaintiff's solicitors on 30 October 1997 according to their clients' account statement, and was therefore available for the issue of a cheque from that account the same day. I have to conclude that the plaintiff was accordingly able to complete from a financial point of view.

5. As to willingness to complete, the evidence of Ms Mak Wing Yee, a conveyancing executive with the plaintiff's solicitors, is that, having eventually been advised by Ms Agnes Li of the defendants' solicitors that the one cheque required should be made payable to the solicitors, she arrived at their office shortly before 5 p.m. with the cheque, a completion letter and a duly executed assignment, saw Ms Li, and told her she was there to complete the purchase subject to the matter of vacant possession which she had been informed was still an outstanding issue. However, as she had also been informed that it was likely that the defendants would not be able to deliver vacant possession, she had with her in addition a letter for the purpose of rescinding the agreement if that happened. She then said that she waited in the 2nd defendant's solicitors reception area until about 5.35 p.m. when she was informed by Mr Wong of the plaintiff that the defendants could not deliver vacant possession and that the plaintiff had decided to rescind. She accordingly handed the second letter to Ms Li. However, she said that she had also shown the completion letter, the cheque and the assignment to her to show that they were able and willing to perform the agreement.

6. Ms Li does not agree with this version of events and says that, although Miss Mak arrived at the office shortly before 5 p.m., she did not answer when asked if she had brought the cheque for completion, but said she was waiting for a telephone call from the client, and did not show the cheque to her. She says Miss Mak then waited in their reception area until she spoke to her client on the telephone at about 5.30 p.m. and said that her client could not take over the land. She then handed over the letter accepting the defendants' purported repudiation of the agreement and demanding the return of the deposits paid.

7. Although Miss Li says that she did not see the completion cheque, I have no reason to believe that Miss Mak did not have it, and, had she received instructions to that effect, would have handed it over with the completion letter. The only matter standing in the way if completion as far as the plaintiff was concerned was the question of vacant possession.

8. From the evidence I have heard, it is clear to me that the plaintiff was certainly able to complete this agreement. The funds were available and a cheque had been made out as required by the agreement by the time stipulated for completion. I am also satisfied that they were willing in the sense that, if they believed that the defendants were in a position to deliver vacant possession, they were prepared to honour their side of the bargain, and had taken steps to do so. Whether they were willing in the sense that they had lost any enthusiasm for the project, as a result of a falling market or for any other reason, and accordingly would welcome an opportunity to rescind the agreement, is another matter, and, in my view, is not a relevant issue here.

9. It is clear that, by the later part of 1997, the property market was declining at an increasing rate, and the price agreed for this property was, by October, higher than that the defendants could expect to obtain were it offered for sale anew. For property developers, as the plaintiff and Henderson are, buying land for their "land bank" which would lie idle for some time before it is developed, they obviously do not wish to pay more than the market price and watch the value decline while it can be put to no other use. Their attitude will inevitably lean towards rescinding the agreement, if they can do so legally and within the spirit of it. It would not be the first time that such a situation has arisen in Hong Kong. It may even be possible that an unscrupulous prospective purchaser might ask his solicitors to minutely scrutinize documents of title to try to find a defect in them, or instruct a surveyor to inspect a property for breaches of the Buildings Ordinance, to find a way of reneging on a deal without loss to themselves. However, if such a defect or irremediable breach is discovered, it does not affect the right of the purchaser to rescind if his motive for doing so is a desire to get out of what has become for him a less than sound financial proposition. In short, the motive of the purchaser is irrelevant. The sole issue must be whether or not either party is able to complete according to the terms of the agreement. If the vendor cannot, then that is an end to the matter, whether or not such inability is the outcome desired by the purchaser.

10. Willingness to complete is not to be equated therefore with enthusiasm for the deal, but with being prepared to carry it out if compliance by the other side makes it necessary to do so, where failure to do so would put the party reneging in breach. Here the plaintiff, while possibly no longer keen on the transaction, was clearly both prepared to carry it out and was able to do so.

Vacant possession

11. The land in question here consists, as I have said, of some 31 lots in the New Territories, most of them contiguous, but with four lots slightly separate. It is undeveloped land, some of which has been used in the past for agriculture, most now overgrown and wild, with a few small buildings, some of which are now ruined, and no doubt a considerable amount of discarded items. It is not in dispute that the greater part of the land in uninhabited and vacant, but in respect of a few lots, it is the plaintiff's case that they were still inhabited and used at the time scheduled for completion to the extent that the defendants were unable to give vacant possession. These latter are lots 1495, 1502 A-I, 1503, 1504, 1532 and 1536. There was additionally some evidence from the plaintiff's witnesses that a representative for the defendants told them that someone was still using lots 1521, 1522 and 1523 and it was not ready for possession. However, there is no evidence that they inspected this land nor saw any sign that it was occupied or used, and I am not prepared to find on the basis of that evidence alone that this land was not also vacant at the time scheduled for completion.

12. The evidence in respect of the other lots was given by three employees of the plaintiff, or rather of Henderson Real Estate Agency Ltd, working on behalf of the plaintiff. These were Chan Wing Kwan, Yip Chi Wai and Tong Shun Ting, and their evidence concerns visits to the land by Chan and Yip, with one other, on 23 October 1997, by Chan alone on 28 October, and by all three on two occasions on 30 October, once in the morning and once in the afternoon. Although the visits on 30 October are clearly the most important for the purpose of these proceedings, I will deal briefly with those on the other two days.

13. On 23 October 1997 Mr Chan had walked to the area from Tai Lam Country Park and had taken photographs from a place where he could look down on Lot nos. 1503 and 1504. He saw and photographed a number of goods vehicles parked there, and on going down to the gate found it locked and dogs inside the premises barking. From the condition of the property he concluded that it was still occupied. He then went on to some of the other lots and, from seeing what he assumed was washing hanging up and household utensils, took the view that these were also occupied. On 28 October he returned, this time alone. Nothing appeared to have changed, and he thought that he saw a light from a house on Lot no. 1496 which also had dogs guarding it. On neither occasion was he able to locate Lots 1532 and 1536.

14. On the strength of what he had seen, and also on what he suspected, the plaintiff's solicitors wrote to the solicitors for the defendants, who were separately represented, on 29 October pointing out that the property seemed to be occupied and inviting them to a joint inspection the next day, being the day fixed for completion. A reply was only received from the solicitors for the 2nd defendant, the 1st Vendor, who, after referring to a guarantee they said had been given by their client's agent that "he can obtain vacant possession", went on to say:

We have also been instructed that the said agent or the 2nd Vendor and your client or its agent will inspect the above property tomorrow morning to see whether the problem can be resolved.

In fairness, we are instructed that our client has no objection to extend the date of completion to 31 October 1997 or a few days more, subject to the agreement of the 2nd Vendor.

We have today verbally informed the 2nd Vendor's solicitors, Messrs. Anthony Y.L. Au & Co. the above matter and asked them to check whether their client can resolve the problem today and if not, whether their client will agree to extend the date of completion. Unfortunately, we have not received any reply from them up to the time of writing.

15. At that stage, in any event, there was no denial that there may be a problem with vacant possession.

16. There are conflicting versions of what happened on the morning of 30 October when Mr Chan set off again to visit the property. He says that he and Mr Yip had been told that an appointment had been made to meet the vendors' representative in Yuen Long, but was told by mobile telephone on the way that he should ring a Mr To, who was a Mr To Sum of whom more later. He says that Mr To gave him the number of Mr Chan Ki, a freelance estate agent who had been involved in the sale, who would meet them at the site. Mr To says that he asked him if he was there to take vacant possession and he said he was not, but could not find some of the lots. He says that he gave him Mr Chan Ki's number to help him. I find it unlikely that he did not know that Mr Chan was a representative of the purchaser, particularly in the light of the correspondence between solicitors the previous day. In any event, Mr Chan rang Mr Chan Ki and arranged to meet him and go to the property and did so, getting there about 11.40 a.m. Mr Chan Ki knew at that time that Mr Chan was a representative of the purchaser. They went again to Lots 1502 and 1503, but the gate was again locked and Mr Chan Ki had no key. However, he showed Mr Chan a document purporting to be signed by the occupier, Mr So Kin Hung to the effect that he would vacate. They also went to look at other lots, and Mr Chan says that there was some conversation to the effect that some were still occupied. Mr Chan Ki denies this, and, in the absence of any other evidence I am prepared to accept that there may have been a misunderstanding. They also went to Lots 1532 and 1536, which Mr Chan had been unable to find before. Apart from an empty house, it appeared that someone had planted some vegetables in one area. Again, the fact that someone had made use of a small piece of vacant land to grow vegetables, without evidence of other occupation, does not in my view prevent it being handed over with vacant possession.

17. Mr Chan reported back to his employer and was told to go back to the property that afternoon. He went with Mr Yip and Mr Tong and again met with Mr Chan Ki. The latter denies that it was the same person as in the morning, but this is clearly not the case as photographs taken later show. He also claims that he did not know in what capacity they came, but this too cannot be right. He knew in the morning that they were representatives of the purchaser and he must also have known that this was the day fixed for completion. The possibility that they were there in any other capacity not connected with the sale is so remote that I reject it.

18. It will be apparent from what I have said above that I consider there is little evidence of inability on the part of the defendants to be able to deliver the major part of the land. The only exception to this is that part under Lot nos. 1502, 1503 and 1504, on which So Kin Hung had been living. It was to this part of the land that Mr Chan returned on the afternoon of 30 October with Mr Chan Ki getting there at about 4.40 p.m. The gate was again locked, but this time it was opened: according to Mr Chan by a woman inside he later knew to be Mr So's wife; according to Mr Chan Ki by Mr So who he had called on his mobile telephone. It is not important as to whose recollection is correct, the fact being that they did gain access, and Mr So arrived at the time or very shortly thereafter and showed them round, while one of them took photographs.

19. There are a number of matters in respect of this part of the property which the plaintiff says show that it was not only occupied as a residential and working place by Mr So, but also was used as storage for goods and vehicles. As such they say the defendants were not, on that day, able to give vacant possession of it. The matters the plaintiff points to are, they say, shown clearly in the photographs taken at the time, and I have to say that these do appear to support that contention. While there are several derelict structures on the site, there are others, not only in a good state of repair, but clearly used, furnished, and equipped with air-conditioning. In evidence the buildings in issue were referred to, as marked on the map produced, as A, B, D and E, and I will also refer to them as such. Buildings B and E were within the boundary of the property; about half to two thirds of A was within that boundary, and D was outside it.

20. Mr So said that he did not reside on the property and had moved to D, which was on government land. However, it is apparent from the evidence and the photographs that buildings A, B and E were still very much used, and from evidence, or lack of it, which I shall refer to shortly, I am not satisfied that building D was.

21. Although there is no photograph clearly showing the interior of building B on that date, there is one taken more recently showing it fully furnished for occupation, and Mr Chan says that that is what it looked like on that day. Indeed, close examination of the photograph taken that day shows at least some of the same furniture, a sideboard and one of the dining chairs, which appear in the later photograph. There are also curtains in the windows. Mr So says that the building was not his residence, but it is significant that his wife and young child, chose, as is shown in the photograph, to go to that building to stand inside and observe proceedings.

22. Also shown in the photographs are buildings A and E, the former with a considerable amount of boxes and other items stored there, and the latter with a split air-conditioner fitted, which Mr So admitted contained other furniture. Outside the buildings were six or seven light goods vehicles, apparently unregistered and stored, Mr So says, for parts, another private car which he said was used by his wife, and a number of tools, a trolley, a ladder, and utensils and other accoutrements which one would connect with a property occupied and used. At the same time, the evidence of the plaintiff's witnesses indicates that there were no signs of an occupant packing and moving.

23. Mr So's evidence on the other hand was that he had already moved out. He said that he had renovated building D on the government land, which had been a chicken shed, and was living there with his family, when they were there, although they lived most of the time in America. He said that his family had occupied the land for many years, initially as farmers, but he was the only one left, and he made a living trading in tea, and working on motor vehicles. The tea he buys in large wooden or cardboard boxes, and repacks into smaller containers for sale to restaurants, sometimes blending different teas, and has a light goods vehicle to deliver round the New Territories. He said that he was now doing this in D. The photographic evidence does not support this. There are clearly a large number of boxes stored in A, where there is also a trolley. Some of the boxes appear to be unopened. In short the building has all the appearance of one being used for his business, while building B appears as one still being lived in, and this from photographs taken a matter of minutes before the deadline for completion.

24. The rest of Mr So' s evidence, and indeed that of Mr To Sum and Mr Chan Ki as to Mr So's removal from the property, does not bear close examination. Apart from the evidence of what was contained in D, which varied to some extent with each witness, it appears that there was no toilet, Mr So still having to use that on the property. There is no photographic evidence of the state of that building and whether it could be used as he says. The only photograph shows it in the distance and a close examination seems to indicate that it has no windows or doors, which tends to confirm the evidence of Mr Chan who described it in these terms. Further there is no convincing evidence that there was any access to it except through Lots 1502 - 1504. Again Mr So said that there was a path which he and his brothers had paved when it was a farm. But the photographs do not show it, indeed rather the contrary. There is no break in the vegetation outside the property on the road leading to it, nor is any shown in the aerial photograph taken that year. Mr So says he can get through and make a parking space if he removed bamboo and banana trees, but he admitted that he had not done so then.

25. What then are we left with? A building which he says he could use, but without evidence which satisfies me that he could and did, and no evidence that he had sufficient access to it for his vehicle to continue his business without still using the property to drive through and park on. In addition to this there is ample evidence from which I consider it more than likely that he was in fact still living in the buildings on the property, and using them for his business. From this it is evident that he had not vacated the property and was still occupying it in the same way he had done for some time.

26. I have no doubt that he was willing to vacate at some time. He had signed statements on several occasions to that effect. But indicating a willingness to vacate is not the same as vacating, and a purchaser of property cannot be expected to accept an assurance, however genuine it seems, rather than actual possession.

27. Not only is it the defendants' case that the property was vacant, which as I have found it was not, but that Mr So was there only as a watchman. Evidence for this came from Mr To Sum, whose part in all this is not clear, as indeed, is his interest in the land. He claims that he had been "managing" the defendants' land since 1995 and had arranged Mr So and two other occupants of other lots, also called Chan, who have since left, to remain as watchmen to ensure that no one moved on to the land, particularly illegal immigrants, and had regularly visited the land to check on it and the occupants. This does not accord with the evidence of Mr So, who said he only met Mr To for the first time shortly before the date of the sale and purchase agreement, and that of the 2nd defendant, who said that he had made the arrangement with Mr So and the Chans in 1989. The truth seems to be that Mr So and the other occupants were permitted to remain as licensees with an additional advantage to the owners that there would be someone to discourage squatters, and they had all signed acknowledgements of this to ensure, so the owners clearly expected, that possession could be obtained easily in the event of sale. I am not so sure that Mr So saw his agreement in the same light. From evidence of his replies to questions from Mr Tong on 30 October1997, he appears to have considered that his commitment was to vacate when the owner wanted to actually develop the land. The written acknowledgements of his temporary occupation seem to support this, saying that he will move out when required to do so. But either he had not been required to do so, or had failed to. It was not for the plaintiff's representatives to demand that he do so, but the duty of the vendors to ensure that he had.

28. Mr To gave evidence that he had been waiting in another part of the land for a representative of the plaintiff to arrive so that he could hand over vacant possession. Whether he was or not, and the evidence is again confusing, does not concern me here, but what does is whether he had made sure that he was in a position to hand it over. I am not satisfied that he was. The defendants rely in part on a fax sent on behalf of Mr To to the plaintiff's solicitors in the afternoon of the 30 October, saying that he was waiting to deliver vacant possession. Whether he was or not, if he could not in fact deliver it, his intentions make no difference. And whether or not the plaintiff's staff were there to accept vacant possession, or to merely check on the situation, is not relevant if it is clear that vacant possession could not in any event be delivered.

29. It is contended on behalf of the plaintiff that it was not only the occupation of Lots nos. 1502 to 1504 by Mr So which prevented vacant possession being delivered, but the presence on the same lots of the goods vehicles and the items in building A. However, as Mr Chong for the defendants has pointed out, were vacant possession otherwise available, if one were to take the total area of the land into account as against the small area they occupied, the Court is entitled to take account of the rule de minimis not curat lex. Further he says that one should look at the circumstances of the land as a whole to see whether what is left by way of rubbish or otherwise really prevents the use of the land for the purpose of the purchaser.

30. As to the first contention, I tend to agree. The area of the whole of the property to be conveyed is 22 650 square metres, and the part occupied by the items, which for the purposes of this argument I will regard as to be discarded, is a small part of one lot. I do not consider that same principle can be applied to the occupation by Mr So of those lots as a residence and place of business. The presence of rubbish on a scale such as this would not prevent the use of the land by the plaintiff, but the presence of an occupant, who may not move willingly, clearly is, and the same rule cannot therefore apply to that occupation, however small an area he occupies in relation to the rest of the land.

31. I also accept that, with regard to land such as this, a certain amount will be left behind by previous occupants which a purchaser would expect to have to clear. It was, after all, agreed to be purchased "as is". It is former agricultural land in the New Territories, largely abandoned by its former occupants. Consequently there are a number of old structures, both domestic and agricultural, and I have no doubt a close examination would reveal a wealth of old farm implements, and discarded domestic items. In addition, any purchaser of such land in the New Territories will hardly be surprised to find abandoned vehicles. The fact that those in question here are all in the same place does not alter the fact that there are only seven in a large piece of land. By New Territories standards this may well be a very modest number. This land was, as I have said, being purchased as part of the plaintiff's land bank, with a view to development some time in the future. Taking this into account, and the type of land being purchased, none of the inanimate objects on the land in my view would have prevented vacant possession being given.

32. It follows, however, that, as a result of Mr So's occupation, I am satisfied that at the time scheduled for completion, the defendants were not in a position to deliver vacant possession of the whole of the land the subject of the sale and purchase agreement.

Breach of the agreement

33. Having found that the defendants were not in a position to carry out their part of the agreement, however willing they may have been, the question now remains as to whether the plaintiff should have performed its part by tendering the purchase price at the time fixed for completion, instead of waiting to see if the defendants could perform theirs.

34. Mr Chong submits that there was no repudiatory breach by the defendants at the time fixed for completion, and, the obligations of the parties being simultaneous, it was not for the plaintiff to wait to see if the defendant could first perform their part of the agreement before performing theirs, and they were therefore the party in breach by failing to tender the contract price. He seeks to distinguish the case of Pang Chor Ying Annie v Lifton Investment [1993] 2 HKC 57 on the basis that in that case the vendor had already committed a repudiatory breach by removing furniture included in the sale. However, I am of the view that there are in fact obvious similarities between that case and this. There it was the obligation of the vendor to hand over the property with the items of furniture still there, and, presumably, they could have been returned at any time before completion was due to take place, but it became apparent to the purchaser that this was unlikely to happen. Here we have the other side of the coin. The obligation of the vendor was to deliver vacant possession and it was abundantly clear to the purchaser that the vendor was not going to be able to do that. As Litton JA said in that case:

The obligations under the agreement were concurrent and mutual: see Canberra Investment v Chan Wai-tak [1989] 1 HKLR 568, 574C. The performance by the vendor of her obligations triggered those of the purchaser, and vice versa. When it became clear to the purchaser that the vendor was unable to fully discharge her obligations under the agreement, the purchaser was entitled to withhold its performance.

The same point is made in the case of Chong Kai Tai v Lee Gee Kee [1997] 1 HKC, where, in a judgment by the Judicial Committee of the Privy Council, it was held that vendors who were not in a position to complete before the time fixed for so doing were not entitled to claim the purchasers had repudiated the agreement by not paying the balance of the purchase money before that time.

35. It is apparent for the facts of this case that, not only were the vendors not in a position to deliver vacant possession at any time prior to completion, and seem to have taken no steps to ensure they could do so in respect of the part of the property occupied by Mr So apart from securing an assurance from him, there was clearly no prospect of them being able to do so. Once the plaintiff was aware of this, there was no obligation on them to tender the purchase price.

Conclusion

36. For the reasons given above I am satisfied that the plaintiff is entitled to the relief claimed in the statement of claim. There will accordingly be a declaration that the plaintiff has effectively rescinded the agreement, and that by reason of the repudiation by the defendants of the agreement the plaintiff is relieved from all liabilities arising out of, and all further performance of its obligations under the agreement. There will be an order for repayment to the plaintiff of the deposits paid in the total sum of $2,200,000.00 with interest thereon from 30 October 1997 to date hereof at 1% over HSBC prime rate, and payment of the sum of $76,387.00 being the costs of investigating title and other expenses paid to the solicitors, with interest for the same period at the same rate. The plaintiff is also entitled to a lien on the suit properties for the said sums, interest and costs of this action. I have heard no evidence that the plaintiff suffered any further loss as a result of the abortive sale which would justify an enquiry as to further damages, and in particular I understand the evidence to be that estate agent's commission was not payable, but there will be liberty to apply for a further order in this regard if I am wrong on this.

37. There will be an order nisi that the defendants pay the costs of the plaintiff to be taxed.