YIP KA YEE v. LEI I SI

DCMP 1920/2022

[2023] HKDC 429

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1920 OF 2022

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D E C I S I O N

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BACKGROUND

1.  This is a vendor-purchaser summons under section 12 of Conveyancing and Properties Ordinance (Cap 219)(“CPO”).

2.  The subject property is a car-parking space known as “Carpark No. A101, Level 1, Royal Ascot, No.1 Tsun King Road, Sha Tin, New Territories” (the “Property”).

3.  On 19 February 2022, the plaintiff and defendant entered into a provisional sale and purchase agreement (the “S&P”) of the property at a consideration of HK$1,280,000. The terms of the S&P including the following:

(a)  Clause 2(a): The deposit of HK$128,000 shall be paid upon signing of S&P;

(b)  Clause 2(d): Completion was fixed to take place on 25 March 2022;

(c)  Clause 4: Defendant covenanted to the plaintiff that the property was to be sold free from encumbrances;

(d)  Clause 11: Upon defendant’s failure to complete the sale in accordance with the S&P, defendant shall immediately refund the deposit paid to the plaintiff and pay a sum equivalent to the deposit or 10% of the purchase price, whichever is the lower, to the plaintiff;

(e)  Clause 13(a): In the event that the defendant failed to complete, the defendant shall compensate the estate agent an amount of HK$25,600 as liquidated damages. Such clause survives the termination of the S&P.

4.  The initial deposit of HK$128,000 was paid by the plaintiff to the defendant’s solicitors as stakeholder upon signing of the S&P.

5.  A draft formal sale & purchase agreement (“Formal S&P”), was circulated between parties’ solicitors in early March 2022 but eventually it was never signed by the parties.

6.  The plaintiff’s solicitors have raised title requisition by letter dated 4 March 2022 in respect of the following:

(a)  The property belonged to one Yip Yuk Tong as its registered owner and was affected by certain charging orders.

(b)  The property was charged by a charging order nisi in favour of one Camden Finance Limited dated 1 September 2020 in HCA 316/2020. The said charging order nisi was subsequently made absolute (the “Charging Order”).

(c)  By order dated 27 May 2021, one Yip Yung Kan substituted Camden and became the chargee of the Charging Order.

(d)  On 30 November 2021, without applying for an order for sale by public auction as required under O.50, r.9A and O.88 of the Rules of the District Court by way of fresh originating summons proceedings, the said Yip Yung Kan directly executed an assignment in favour of his wife, ie the defendant, at a consideration of HK$1,250,000 (the “Assignment”).

7.  The plaintiff submitted that the assignment was invalid and ineffective for the following reasons:

(a)  The Property was still owned by its owner, Yip Yuk Tong, who would be able to assert a claim over its interest. The defendant had no good title to sell.

(b)  It was disclosed by defendant’s solicitors that Yip Yung Kan and the defendant are husband and wife. The Assignment amounted to a self-dealing transaction by the chargee which is liable to be set aside in equity by the charger.

(c)  The Property was encumbered by the Charging Order and other charging orders registered against it and the plaintiff will not be able to take free of such charges.

(d)  The defendant also failed to produce and deliver up the originals of the title deeds for the purpose of giving and showing title.

8.  The plaintiff further investigated and found that the assignment was withheld from registration by the Land Registry. Then various correspondences were exchanged between the parties’ solicitors. Defendant’s solicitors tried to uphold the validity of the assignment by relying on a number of legal arguments and accused the plaintiff for failing to execute the draft Formal S&P. The plaintiff’s solicitors refuted such accusations.

9.  Completion did not take place on 25 March 2022 as scheduled. The plaintiff, relying on the terms of the S&P, demanded the defendant to:

(a)  refund the deposit;

(b)  pay liquidated damages of HK$128,000; and

(c)  settle the compensation payable to the estate agent.

10.  By various letters in reply, the defendant refused the plaintiff’s demand but insisted that she had sufficiently answered all requisitions and has proven and given good title. Furthermore, the defendant contended that no order for sale was required, so that the defendant accepted the plaintiff’s repudiation. The defendant also accused the plaintiff in breach of the S&P by failing to sign onto the draft Formal S&P. The defendant counter-offered to sign a cancellation agreement for the return of the deposit and nothing more. The plaintiff rejected such counter‑offer.

11.  On 14 April 2022, the defendant unilaterally executed one Notice of Cancellation of Provisional Agreement for Sale and Purchase, and sought to register the same at the Land Registry.

12.  On 5 May 2022, the defendant sent a cheque of HK$128,000 for refund of the deposit. It is not in dispute that the cheque was an unconditional refund without compromising the plaintiff’s rights to claim a further HK$128,000 under the S&P and to seek further relief.

13.  In the meantime, the estate agent, Midland Realty International Ltd, chased the plaintiff for payment of agency commission. The plaintiff denied to pay, alleging that it was the defendant who was in breach of the S&P.

14.  The plaintiff commenced the present proceedings by originating summons under section 12 of CPO on 7 June 2022.

15.  The defendant denied liability. In her affirmation in opposition dated 11 July 2022, defendant insisted that she had good title to give at completion and contended that Yip Yung Kan was entitled to take possession and sell the Property to her by way of private contract and she had sufficiently answered all requisitions.

16.  At the call-over hearing on 15 November 2022, Mr Kwok for the defendant made the following novel submissions in his written skeleton:

“4. It is trite law that a charging order absolute is treated as nothing more than an equitable charge under hand in writing by the owner of the property and has no effect to transfer the title without an order of court.”

“6. ... The execution by the Defendant’s husband of the assignment of the car park to the Defendant was thus devoid of effect. Hence title to the car park space was, at all material times, still vested within the judgment debtor Yip Yuk Tong.”

ISSUES

17.  Mr Kwok has in effect withdrawn from the contention that the defendant has sufficiently answered all requisitions and has proven and given good title, but reinforced the new position of the defendant in paragraphs 2, 8 and 29 of his skeleton submissions dated 8 March 2023:

“2. …In consequence, the car park remains at all material times with the judgment debtor Yip Yuk Tong ...”

“8. By reason that the car park was still vested with Yip Yuk Tong, the Defendant did not have a car parking space to sell on the date she signed the S&P with the Plaintiff. …”

“29. ...the Defendant did not have the car park (or title to it) to sell. …”

18.  The defendant is now contesting the originating summons on the following grounds:

(a)  Common mistake – according to paragraphs 8 & 13 of the defendant’s skeleton submissions dated 8 March 2023:

“8. … At the time of signing the S&P, both the Plaintiff and the Defendant shared the same common mistake that the car park was the Defendant’s while in fact, to the ignorance of both parties, the Defendant did not have the car park.”

“13. There being no contract or no enforceable contract, the Defendant was not in breach of the S&P. In all fairness to the Plaintiff, neither was the Plaintiff in breach by not signing the formal sale and purchase agreement because the provisional sale and purchases agreement (the S&P) was void ab initio and the clause obliging the Plaintiff to sign the formal sale and purchase agreement would not have been enforceable against the Plaintiff.”

(b)  The defendant’s contractual obligations to answer requisitions raised by the plaintiff to show good title or to assign the property with good title have not arisen until the signing of the Formal S&P or execution of the assignment according to the defendant’s skeleton submission, paragraphs 15 to 17. Since there is no Formal S&P or assignment executed by the parties, the defendant submitted that she is not under any obligations to perform any of the above matters.

(c)  Clause 11 of the S&P in respect of payment of liquidated damages by the vendor in case of failure to perform is unenforceable as the plaintiff has elected to terminate the S&P.

COMMON MISTAKE

19.  Mr But for the plaintiff cited Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 and summarised the elements and principles for common mistake in his skeleton submissions at paragraph 34:

(a)  There was a common assumption as to the existence of a state of affairs.

(b)  There was no warranty by either party that the state of affairs existed.

(c)  The non-existence of the state of affairs was not attributable to the fault of either party.

(d)  The non-existence of the state of affairs had rendered contractual performance impossible.

(e)  The state of affairs was the existence, or a vital attribute of the consideration to be provided or circumstances which must subsist if performance was to be possible.

(f)  Neither party had undertaken responsibility for the subsistence of the assumed state of affairs.

20.  Having considered the above authority and the evidence before me, I find that the defendant is not entitled to rely on common mistake and the S&P is not void for common mistake for the following reasons.

The defence of common mistake was entirely new and came out from the blue

21.  It has never been mentioned in the answers to the requisitions raised by the plaintiff nor has it mentioned in the defendant’s affirmation. The defendant never mentioned in any of the correspondence that the S&P was void due to mistake. To the contrary, pursuant to the answers given on behalf of the defendant all along, the defendant accepted and committed to the position that the S&P was valid and binding. She further confirmed that in her affirmation and contended that the plaintiff was in repudiation.

The defendant has raised no factual basis to show the requisite elements of common mistake

22.  The defendant has to show parties have common assumption as to the existence of a state of affairs, which means that mistake requires the parties having a positive belief in something which is not in fact true and that where the mistake is as to the nature of the subject matter or the factual circumstances. But there is no such evidence adduced by the defendant.

At common law, a party who should have known the truth cannot rely on common mistake and the contract will not be void

23.  The defendant is relying on the fact that the land search clearly shows that the defendant was not the owner of the car park and it is sufficient for the defendant to raise common mistake, notwithstanding that such a legal issue has not been raised in her affirmation in opposition[1].

24.  However, according to the defendant’s affirmation prior to signing of the S&P, the land search record of the Property has been made available to the estate agent and the plaintiff.

25.  Although the defendant did not state clearly whether the land search record was provided by her, by reading the context of her affirmation it is easy to come to the conclusion that it must be the defendant who provided the land search record. Therefore, the defendant should have known the true state of affairs, as Mr Kwok has submitted that the land search record “clearly shows” that the defendant was not the owner of the car parking space. In the circumstances, the defendant is not entitled to claim common mistake.

WHETHER ANY OF THE VENDOR’S OBLIGATIONS HAVE ARISEN

26.  The plaintiff is relying on clause 4 of the S&P to contend that the defendant is obliged to prove and give good title. Clause 4 prescribes that the property shall be sold without encumbrances. So in effect, it requires the vendor to prove and give good title.

27.  Mr But for the plaintiff also relies on the Court of Final Appeal case De Monsa Investments v Whole Win Management (2013) 16 HKCFAR 419, and summarises the decision as follows:

(a)  Notwithstanding a formal agreement was not executed, a preliminary sale and purchase agreement remains to be binding and enforceable by the court to give effect to the parties’ bargain.

(b)  The duty to show and give good title is necessarily implied by law, particularly when a vendor undertook to sell the premises to the purchaser free from encumbrances.

(c)  The duty to show good title entails the obligation to disclose and explain to the purchaser about any missing title deeds with candour unless there was no real risk that the title might be blemished.

(d)  As corollary to such duties, a purchaser is also entitled to the delivery up of original title deeds under the scope of section 13 and section 13A of CPO for the purpose of showing or giving title during the course of the sale and at completion.

(e)  A vendor is under a duty to ensure that the nature of his title is neither defective nor defeasible. He must deal, in a way acceptable to the court with all defects in title so that the facts and circumstances are so compelling, that beyond reasonable doubt the purchaser will not be at risk of a successful assertion against him of any encumbrances.

28.  In light of the above authority, I am satisfied that the defendant is obliged to show, prove and give a good title of the Property and to answer plaintiff’s requisition satisfactorily, notwithstanding that Formal S&P has never been executed by the parties.

THE DEFENDANT’S BREACH

29.  Upon the admission by the defendant’s counsel that the defendant has no title to the Property, the answers given by the defendant’s solicitors must be wrong. Thus, I find that the defendant has failed to answer the requisitions raised by the plaintiff’s solicitors satisfactorily. By the same token, I find that the defendant has failed to show, prove and give a good title of the property.

CLAUSES 11 & 13(a) of the S&P

30.  The last sentence of clause 13(a) of the S&P expressly states that it shall survive the termination of the agreement. Although clause 11 does not contain such a sentence, the proper reading of clause 11 and clause 13(a) together must be in favour of clause 11 also surviving the termination because of the close connection of these two clauses.

31.  As I have found that the defendant has failed to show, prove and give a good title, in other words the defendant has failed to complete the sale in accordance with clause 4 of the S&P. Thus, the plaintiff is entitled to liquidated damages equivalent to the amount of deposit of HK$128,000.

32.  Besides, clause 13(a) also applies. Since the defendant is the defaulting party, the defendant shall pay the agent liquidated damages of HK$25,600.

DISPOSITION

33.  For the above reasons, I make the following order:

(i)  a declaration that the defendant has failed to show, prove and give a good title of the property in accordance with the provisional agreement for sale and purchase dated 19 February 2022 (“the S&P”), and the plaintiff has duly accepted the defendant’s repudiation and terminated the S&P and that accordingly the plaintiff is relieved from all liabilities for the further performance of her obligations thereunder;

(ii)  a declaration that the defendant has failed to answer requisitions satisfactorily in accordance with the S&P;

(iii)  an order that the defendant do pay the plaintiff a sum of HK$128,000 as liquidated damages in accordance with the S&P;

(iv)  an order that the defendant do pay the plaintiff interest at 2% above prime rate on the liquidated damages of HK$128,000 from the date of the originating summons until the date of judgment and thereafter at judgment rate until full payment; and

(v)  an order that the defendant do pay Midland Realty International Ltd all outstanding damages, compensation or commission under clause 13(a) of the S&P.

COSTS

34.  Upon reading the statement of costs for summary assessment of the plaintiff and the objections by the defendant. I deduct one hour of RA under item D1 and another one hour of RA under item D3, adding up a total deduction of HK$6,920. Therefore, I summarily assess the costs of the plaintiff in the sum of HK$211,380. The defendant shall pay such sum forthwith.