PANG MOON KWAN AND ANOTHER v. CONCORD PROPERTY DEVELOPMENT LTD

CACV 55/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 55 OF 2006

(ON APPEAL FROM HCCT NO. 127 OF 1998)

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J U D G M E N T

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Hon Cheung JA :

Facts

1. By three agreements (‘the sales agreements’) all dated 30 July 1997 the defendant agreed to sell and the plaintiffs agreed to buy properties to be built at a residential development known as ‘Vista Paradiso’ situated at Shatin Town Lot No. 338 (‘the lot’).  The properties were Flat B on the L6 Floor of Tower 2, Flat B on the L15 Floor of Tower 1 and car parking space no.6 on the B2 Floor of the development.  The development consisted of three phases.  The properties bought by the plaintiffs were located at phase 1 of the development. 

2. The total purchase price of these three properties was $17,930,000.  The plaintiffs paid a deposit in the sum of $5,379,000. 

3. The terms of the sales agreements for these three properties were identical.  The plaintiffs claimed that the defendant was in breach of the terms of the sales agreements in that it failed to complete the buildings on or before 30 June 1998.  This amounted to a repudiation of the sales agreements which was accepted by the plaintiffs.  They sought, among other things, a declaration that the sales agreements had been rescinded and an order for the return of the deposit. 

4. The defendant denied that it was in breach.  It contended that was the plaintiffs who had failed to complete the purchase under the sales agreements and as a result it had terminated them pursuant to the terms of the sales agreements.  In its counterclaim it asked for a declaration that the sales agreements had been determined and rescinded and also asked for the forfeiture of the 10% deposit. 

5. The defendant then applied for summary judgment of its counterclaim under Order 86 of the Rules of the High Court.  The matter was heard by Deputy High Court Judge Saunders who gave the plaintiffs unconditional leave to defend. 

6. The defendant now appeals against the judgment. 

Terms of the agreements

7. In clause 4(1)(c) of the sales agreements the defendant was required to complete the buildings under phase 1 in compliance with the conditions of the Government Grant on or before 30 June 1998. 

8. Under clause 4(6) the defendant was required to apply in writing for a certificate of compliance or the consent of the Director of Lands to assign in respect of the buildings within phase 1 within 14 days of its having completed the buildings as stipulated in clause 4(1)(c). 

9. Clause 4(7) further provided that for the purpose of clause 4 the issue of a certificate of compliance or consent to assign shall be conclusive evidence that the buildings under phase 1 have been completed. 

10. Clause 5(1) further provided that the defendant was required to notify the plaintiffs that it was in a position validly to assign the three properties within one month of the issue of the certificate of compliance or the consent to assign whichever shall happen first. 

11. Under clause 5(2) the completion of the sale was to take place within 14 days of the date of notification to the plaintiffs that the defendant was in a position validly to assign the properties to them. 

The defendant’s case

12. It was the defendant’s case that the buildings were completed before 30 June 1998, the contractual date for completion of the buildings specified in the sales agreements.  The occupation permit in respect of phase 1 was issued by the Building Authority on 26 June 1998.  On 29 June 1998 the defendant applied to the Director of Lands for consent to assign pursuant to clause 4(6) of the sales agreements.  The consent was granted on 30 September 1998. 

13. By notices dated 24 October 1998 the defendant required the plaintiffs to complete the purchase pursuant to clause 5(2) of the sales agreements. 

14. The completion was supposed to take place on or before 7 November 1998 but the plaintiffs did not complete as requested.  Instead on 2 November 1998 they gave notice to rescind the sales agreements. 

15. By two notices both dated 18 December 1998 the defendant called upon the plaintiffs to complete the purchase within 21 days pursuant to clause 16(1) of the sales agreements.  Under this clause the defendant was entitled to call upon the plaintiffs to make good their default.  If they failed to comply the defendant may then determine the sales agreements. 

16. As the plaintiffs did not meet the request, termination notices were issued on 11 January 1999.  The defendant then resold the properties. 

The dispute : nature of the title

17. The crux of the dispute between the parties before the judge was whether the defendant under the terms of the sales agreements was only required to assign an equitable title instead of a legal title to the plaintiffs. 

18. The plaintiffs argued that the defendant was required to assign a legal title whereas the defendant contended that it was only required to assign an equitable title.  The judge gave the plaintiffs leave to defend on this ground. 

Consent scheme

19. This case is concerned with what is known as the ‘Consent Scheme’ development : see Hong Kong Conveyancing by Sihombing and Wilkinson, Para IV [33]-[47].

The defendant’s own title

20. By an ‘Agreement and Conditions of Exchange’ dated 25 March 1993 (‘the Agreement’) the Hong Kong Government agreed to grant a lease of the lot to the defendant.  Under the terms of the Agreement the defendant was required to fulfil certain conditions including the development of the lot by erecting buildings thereon.  Under clause 13(a) of the General Conditions it was expressly provided that when the conditions have been performed and complied with by the defendant, it shall ‘subject to approval of his title by the Director of Buildings and Lands (‘the Director’) be entitled to a lease of the lot’. 

21. Clause 20 of the Special Conditions placed a restriction on alienation by the defendant of the interest in the lot before the fulfilment of the conditions.  It provided that prior to compliance with the conditions to the satisfaction of the Director the defendant shall not, except with the prior written consent of the Director and in conformity with any conditions imposed by him, assign the lot or any part thereof. 

22. It is clear from the Agreement that the title of the defendant to the lot was in the nature of an equitable title.  This would be the position until it obtained the lease from the Government.

The title to be assigned to the plaintiffs

23. Once the nature of the interest of the defendant itself is identified, the nature of the interest that it would be able to assign to the plaintiffs would likewise be revealed.  While hypothetically a vendor who only has an equitable interest in the property may choose to assign a legal interest to his own purchaser, this is not the case in this particular transaction. 

24. One of the properties that the plaintiffs were to buy was described in Schedule 3 of the sales agreements as follows :

‘ALL THAT the estate right title benefit and interest of and in ALL THOSE 70 equal undivided 181,797th parts or shares of and in the land which for the purposes of identification is shown on the Site plan attached hereto and thereon coloured Pink and of and in the Development now under construction thereon and intended to be known as “VISTA PARADISO （聽濤雅苑）” TOGETHER with the exclusive right and privilege to hold use occupy and enjoy (the description of the individual properties).”

The description of the other properties is the same except in respect of the number of undivided shares.

25. While this description is capable of being construed as a legal interest, such a construction is not applicable in the present case because clause 9(1) of the sales agreements further provided that the property was sold subject to and with the benefit of the Government Grant, i.e. the Agreement. 

26. The certificate of compliance referred to in clause 4(6) of the sales agreements was defined in clause 1(d) as :

‘the certificate issued or to be issued by the relevant Government authority to the effect that all the positive obligations of the Vendor under the Government Grant in relation to the land have been fulfilled.’

27. In view of the provisions of clause 4(6) and clause 5 of the sales agreements the defendant was obliged to apply for a certificate of compliance or the consent to assign within a specific time after completing the building.  Upon obtaining these documents it was obliged to notify the plaintiffs that it was in a position to assign the properties and completion of the sale had to take place accordingly.  This being the terms of the sales agreement, if before a certificate of compliance was to be issuedbut the defendant was able to obtain the consent to assign the only interest that it could validly assign to the plaintiffs would be an equitable interest. 

Equitable interest becoming legal interest

28. The plaintiffs are not prejudiced by an assignment of the equitable interest to them.  Section 14(3) of the Conveyancing and Property Ordinance, Cap. 219 provides that where a person who has a right to a Government lease under an agreement for a Government lease, upon compliance with any conditions precedent, he shall be deemed for the purpose of this section to have complied with those conditions upon the issue by the government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry. 

29. The effect of the compliance of the conditions is provided in section 14(1) :

‘	14	(1)	Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions—
			(a)	the equitable interest under that right shall become a legal estate in that land as if held under a Government lease issued in accordance with that right; and
			(b)	for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.

30. It should be noted that the certificate of compliance was issued by the Director on 5 May 2000.  The plaintiffs’ equitable title would by operation of law be converted to a legal title.

Equitable title to be assigned

31. In my view the nature of the title to be assigned to the plaintiffs is not an arguable point at all.  This is simply a matter of construction of the sales agreements, having regard to their factual matrix which included the Agreement itself.  The defendant must be correct when it asserted that it was only required to assign an equitable title to the plaintiffs. 

32. Mr. Edward Chan SC, counsel for the defendant, while sitting as a recorder had come to the same view in Tin Shui Wai Development Limited v. Polykin Limited (HCA No. 561 of 2004).  His reasoning was also adopted by Deputy High Court Judge Muttrie in Liu Chung Fai v. Tin Shui Wai Development Limited and another (HCA No. 4610 of 2003). 

Tendering of assignment

33. Mr. Chan further submitted that as a matter of conveyancing practice it was for the purchasers i.e. the plaintiffs to tender the draft assignment to the defendant vendor for approval.  If the plaintiffs required a legal title then it should specify it in the draft assignment.  No draft assignment was tendered by the plaintiffs. 

Requisition

34. Mr. Chan further submitted that the plaintiffs had not raised any requisition as to the nature of interest to be conveyed by the defendant.  If requisitions had been raised the defendant could have asked the Hong Kong Government to be joined as a party to convey the interest to the plaintiffs.  He referred to clause 6 of the sales agreements which provided that on the completion of the sale the defendant and ‘all other necessary parties (if any) will exercise a proper assurance of the property to the (plaintiffs) free from incumbrances but subject to the Government Grant’.  This indicated, as submitted by Mr. Chan, that the Hong Kong Government could be asked to join in because after all it was the government who required the defendant to observe the standard term sales agreements for the disposal of its interest. 

Hypothetical situations

35. In my view it is not necessary for me to deal with these alternative arguments of Mr. Chan because they are dealing with hypothetical situations.  The plaintiffs had indeed not raised the requisitions nor tendered any draft assignment to the defendant specifying the nature of the interest to be assigned by the defendant.  They had chosen to terminate the sales agreements on the basis that the defendant had failed to complete the building before 30 June 1998. 

Mr. Chain’s argument

36. Mr. Chain, counsel for the plaintiffs, relied on clause 3(3) of the sales agreements which provided that

‘In the event of the Purchaser being required pursuant to Schedule 4 to pay the balance of the purchase price when the Vendor is not at that time in a position validly to assign the Property to the Purchaser for whatever reason, the Purchaser shall be entitled to withhold such payment until the Vendor is in a position validly to assign the Property and has given at least 14 days’ notice in writing to that effect to the Purchaser.’

37. He argued that this clause indicated that the interest to be assigned by the defendant must be in the nature of a legal interest because if the defendant was able to convey the equitable interest when it obtained the consent to assign there was no need to use the words ‘the vendor is not in a position validly to assign the property’. 

38. In my view this clause does not have such an effect.  I agreed with the submission of Mr. Chan that this clause is not related to the conveyancing of the legal interest but in respect of other situations such as when the vendor was not able to secure the release of an existing mortgage from its own mortgagee or where the vendor was in liquidation after obtaining the consent to assign. 

The Circular

39. Mr. Chain also relied on the Circular Memorandum No. 39 (‘the Circular’) issued by the Legal Advisory and Conveyancing Office of the Lands Department dated 21 May 1999.  Paragraph 2 of the Circular stated that :

‘Pursuant to a Consent to Assign, a vendor can convey an equitable interest and not a legal estate.  Although the approved form of Agreement does not stipulate that there be an assignment of a legal estate upon completion, with a view to avoiding the possibility of argument that the vendor must convey a legal estate on completion, a new subclause 12(2) has been added to the approved form of Agreement as per the attached.’

40. The attached amendment advised that

‘

Clause 12(2)

The Purchaser shall raise no objection if the Vendor’s interest in the Property is an equitable interest and not a legal estate.’

41. Although the Circular referred to the possibility of argument that the vendor must convey a legal estate on completion, ultimately the issue is one of the construction of the sales agreements and the Circular would not assist the plaintiffs in showing that an arguable issue has been raised in respect of the nature of the title to be assigned by the defendant. 

42. While Mr. Chain said that he would challenge the good faith of the occupation permit which was issued on 26 June 1998 when nine days earlier on 17 June 1998 the Authorized Person of the development had issued a certificate of extension of time of eighty three days from 30 June 1998 for the completion of the buildings, there was really nothing which suggested that the occupation permit issued by the Building Authority on 26 June 1998 was otherwise invalid.  Certainly no particulars had been given which may impugn the invalidity of the occupation permit. 

43. Further the defendant was not relying on the extension of time at all.  It grounded its case solely on the basis that completion of the buildings was achieved in accordance with the contractual provision. 

Subsidiary points

44. There are two subsidiary points relied upon by the plaintiffs in opposition to the application for summary judgment.  The first is in respect of the compliance with clause 10(c) of the sales agreements and the other was in respect of clause 4(4)(c) of the sales agreements. 

Clause 10 of the sales agreements

45. Clause 10(c) provided that, among other things,

‘	10.	The Vendor hereby warrants :-
		(c)	that the fittings and finishes specified in Schedule 5 shall, on or before completion of the construction of the Building, be incorporated into the Property Provided Always that if the Vendor is prevented by force majeure or other reason beyond his control from obtaining such fittings and finishes, other fittings and finishes certified by the Authorised Person to be of comparable quality may be substituted;’

46. The plaintiffs argued that the defendant had to show that the fittings and finishes had incorporated in the properties before it could validly ask the plaintiffs to complete. 

47. There are two answers to this issue.  First clause 10(c) is in the nature of a warranty and not a condition.  The failure to comply with this clause would not prevent title to be conferred on the plaintiffs.  The fittings and finishes as specified in Schedule 5 consists of four pages.  To give a favour of some of the items, I would list the description of walls and ceiling specified in the schedule :

‘	Walls :	Living/dining rooms and bedrooms – plastered and painted where exposed with wood skirting.
		Kitchen – homogeneous tiles up to line of ceiling.
		Bathrooms – marble/granite tiles up to line of ceiling.
	Ceiling :	All plastered and painted.  False ceiling to kitchen and bathrooms.’

48. Clause 10(c) cannot be in the nature of a condition because otherwise the non-compliance of any one of the scheduled items would prevent completion from taking place.  This could not be intended.

49. Second and what is more important is that this being an application for summary judgment, the plaintiffs must condescend to give particulars of their defence.  Apart referring to the breach by the defendant of clause 10(c), they had not identified any specific breach by the defendant in this regard.  This could not be a credible defence. 

Clause 4(4)

50. Under clause 4(4)(a) of the sales agreements if the buildings were not completed in accordance with the terms of clause 4(1)(c), upon the rescission by the plaintiffs the defendant was required to repay the plaintiffs all monies paid by them together with interest.  There was a similar clause under clause 4(4)(c) which provided for the payment and interest where the building was not completed in accordance with the building plans and the other provisions of the sales agreements within a period of six months from the date specified in clause 4(1)(c).

51. The plaintiffs seemed to argue that they were entitled to interest under clause 4(4)(c) and hence there should be a trial on quantum.  This is not a pleaded defence.  In any event the available evidence showed that the buildings were completed before the contractual date.

Conclusion

52. To conclude, this is a fit and proper case to be dealt with by way of summary judgment application.  The defendant is entitled to its application.  Accordingly the appeal is allowed and there shall be judgment in terms of the defendant’s Order 86 summons.  The plaintiffs’ respondent notice is dismissed.  The defendant is entitled to the costs of the appeal.

Hon Yeung JA :

53. I agree and there is nothing I can usefully add.