XCHRX WONG PUI v. JAPAN LEASING (HONG KONG) LTD.

HCA 5902/00

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5902 OF 2000

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J U D G M E N T

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1. This is an appeal from the order of Master Wong made on 9 October 2000 giving the defendant unconditional leave to defend this action. The plaintiff had applied for summary judgment under O.86 R.H.C.

2. The plaintiff was the purchaser and the defendant the vendor of the property known as Apartment 10A on the 10th Floor and Car Parking Spaces nos. 29 and 30 on Carport 1, no. 2, Shiu Fai Terrace, Hong Kong ("the property"). The defendant sold the property as the legal chargee of the property at a public auction. By a Memorandum of Agreement dated 28 April 2000 annexed to the General and Special Conditions of Sale ("the agreement"), the plaintiff agreed to purchase and the defendant agreed to sell the property for HK$7,440,000. Completion was to take place on or before 30 May 2000. On 28 April 2000, the plaintiff paid the defendant a deposit of HK$744,000 in part payment of the purchase price.

3. The plaintiff contends that the defendant was in breach of the agreement. There are two matters in respect of which complaint is made in the Statement of Claim. The first matter is that in breach of the agreement the defendant has encumbered the property and/or allowed and/or permitted the property to be encumbered (para. 4). The second matter is that in further breach of the agreement the defendant failed to deliver vacant possession of the property to the plaintiff on completion (para. 5).

4. By reason of those breaches, the plaintiff contends that the defendant repudiated the agreement which was accepted by the plaintiff thereby rescinding the agreement. The plaintiff claims, inter alia, a declaration that it has effectively rescinded the agreement and repayment of the deposit paid and damages for breach.

5. The principles governing applications for summary judgment are well established and clear. It is the same for O.14 and O.86 applications. It is worth remembering what Godfrey J(as he then was) said in Unic Co. v. Centus Development Ltd [1988] HKC 643 at 647 :

"The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v. Stone [ 1894] AC 122.

As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment. Order 14 is not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the court, nor to make him liable in such a case to be put on terms of paying into court as a condition of leave to defend."

6. It has also been said that it is a not a proper course for the court to embark at this stage on a mini-trial of the action on affidavit evidence. It is sufficient for the court to ask itself whether the Defendant's assertions are believable (Ng Shou Chun v Hung Chun San [1994]1 HKC 155).

7. It was also helpfully and succinctly pointed by Godfrey J.A. (as he then was) in the Court of Appeal in the case of Man Earn Ltd. v. Wing Ting Fong [1996]1 HKC 225 at 228:

"Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine, Order 14 ought not to be applied' : see Codd v Delap [ 1905] 92 LT 510, per Lord Lindley at 511."

8. Mr Reyes, counsel for the defendant, submitted that triable issues have been raised in respect of both the matters in respect of which complaint has been made in the Statement of Claim.

9. The first matter relates to the fact that two deeds were delivered to the Urban Land Registry prior to the date of the agreement pending registration against the property. The first document was an order of Suffiad J dated 4 January 2000 in HCMP No. 4359 of 1998 in an action by the defendant against Fully Well Investment Limited ("Fully Well"), the registered owner of the property. The order of Suffiad J was made on an appeal from the order of Master B Kwan dated 9 September 1999 in which vacant possession of the property was ordered to be delivered by Fully Well to the defendant. Suffiad J set aside the order of Master B Kwan and made an order that only possession, as opposed to vacant possession, would be delivered to the defendant without prejudice to the rights of any alleged tenant. The second document was a writ of summons dated 26 April 2000 issued by Shun Kai Finance Company Limited, the alleged tenant of the property, against the defendant in action no. 4215 of 2000 claiming a declaration that it was entitled to possession of the property to the exclusion of all others including the defendant and any purported purchaser.

10. Cl. 2(a) of the agreement provided as follows :

"The Vendor is selling as The Chargee and shall not be required to enter into any covenant other than the usual limited covenant that the Vendor has not encumbered the Property................................."

11. By virtue of s. 35 (1)(d) of the Conveyancing and Property Ordinance (Cap. 219) there shall be implied in any assignment the covenant, by a person expressed to assign as, inter alia, legal chargee, mentioned in Part IV of the First Schedule. The covenant in Part IV is as follows :

"That the person so assigning has not executed or done, or knowingly suffered, or been party to or privy to, any deed or thing, whereby or by means whereof the land or any part thereof, is or may be impeached, charged, affected or incumbered in title, estate or otherwise or whereby or by means whereof the person who so conveys is in any way hindered from assigning the land or any part thereof in the manner in which it is expressed to be assigned."

12. Sihombing and Wilkinson, Hong Kong Conveyancing: Law and Practice, Vol. 1(A), Section XII, para. 181 states :

"The only covenant of title implied is that the person assigning has not himself encumbered the title. To breach this covenant there must be active participation by the covenantor in the creation of the encumbrance and mere notice of the fact of the encumbrance will not, in itself, suffice."

13. It seems to me that in respect of the two documents delivered for registration against the property namely, the order of Suffiad J and the writ of summons in the action taken out by the alleged tenant, Shun Kai Finance Company Limited, there is a triable issue as to whether the defendant as the vendor selling as legal chargee was in breach of the limited covenant that the vendor has not encumbered the property. On the first matter in respect of which complaint is made in the Statement of Claim, I am satisfied that a triable issue has been raised.

14. On the second matter, it is submitted that there is also a triable issue. The plaintiff relies on Cl. 21 of the agreement which provided as follows :

"The Property is to be sold subject to any Tenancy set out in the Remarks ("the said Remarks") in the Particulars of the Property ("the said Particulars"). If no tenancy has been set out in the said Remarks, vacant possession of the Property is to be delivered to the Purchaser on Completion."

In the remarks, it is provided as follows :

"Possession will be available upon the completion of Sale and Purchase."

15. Mr Ng, counsel for the plaintiff, submitted that Cl. 21 was clear and the obligation was on the defendant to deliver vacant possession on completion. Because of the alleged tenancy by Shun Kai Finance Company Limited it was unable to do so and hence the defendant was in breach. Mr Reyes, counsel for the defendant, submitted that what is stated under the remarks should be read as qualifying the statement in Cl. 21 that vacant possession be given.

16. It is clear to me that "possession" and "vacant possession" are not the same thing. The evidence that has been filed on behalf of the defendant shows that the plaintiff knew all along that she would not be obtaining vacant possession of the property on completion and that she knew that the property would be sold subject to an alleged tenancy. There is also evidence filed which shows that the auctioneer, Chan Ying Leung, told the plaintiff during numerous telephone conversations before the agreement was entered into that the property would be sold without vacant possession and subject to the alleged tenancy. Also, that at the time of the auction it was announced that the property would be sold without vacant possession and subject to an alleged tenancy. This evidence is disputed by the plaintiff and, of course, the matter cannot be resolved by affidavit evidence alone. Suffice it to say that a substantial dispute of fact has been raised which can only be resolved at trial.

17. It is, of course, permissible to admit extrinsic evidence as an aid to the interpretation of a written contract. Extrinsic evidence of this sort does not usurp the authority of the written document or contradict, vary, add to or subtract from its terms. (paras 12-115 and 12-116 Chitty on Contracts 28th Edn. Vol. 1)

18. The modern approach to construing documents was succinctly stated by Lord Hoffmann in I.C.S. Ltd. v. West Bromwich Building Society [1998]1 WLR 896 @912. In his speech, Lord Hoffmann said as follows :

"The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

' if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.' "

19. The relevant background facts or the matrix of fact is something that is in issue in this case and needs to be investigated at trial. It seems to me that it is reasonably arguable that the parties intended that possession, rather than vacant possession, be delivered on completion. The case of Cheuk Tze-kwok and Leung Yin-king and another [1993]2 HKLR 169 is, in my view, distinguishable on the facts. I am satisfied that a triable issue has also been raised on the second matter.

20. As I have held that there are triable issues which ought to go to trial, I do not think that it is necessary or desirable that I should express a view on the other submissions of counsel. As Litton, V.P. (as he then was) said in the Court of Appeal in Man Earn Ltd. v. Wing Ting Fong, supra @230 :

"In my judgment, all that the judge was called upon to do - and all that he should have done - was to have stated in a few words why he concluded that the plaintiff had failed to satisfy him that the defendant had no defence. Any observations beyond that were unnecessary and otiose."

21. In the circumstances, I am of the view that the Master correctly gave the defendant unconditional leave to defend. The appeal is dismissed.