FANTASY GIFT INTERNATIONAL CO LTD v. GOLD LUCK INTERNATIONAL LTD

HCA2548/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2548 OF 2007

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D E C I S I O N

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Background

1. The defendant bought a property, a workshop in Kowloon, from Loyal Channel Limited and, as part of the overall transaction, was intending to sell it on to the plaintiff for an immediate gross profit of about $400,000. 

2. Unfortunately, due to a typographical error, the completion of the sale to the plaintiff did not take place.  The defendant’s name is Gold Luck International Limited.  In the provisional agreement to buy from Loyal Channel its name was correctly typed.  However, in the agreement itself with Loyal Channel it mistakenly appeared as Good Luck International Limited.  When the provisional agreement to sell to the plaintiff was drawn up the same mistake appeared. 

3. The agreement with the plaintiff provided for the payment of two deposits, each of $116,000.  The first cheque, dated 16 November 2007, was made out to Good Luck International Limited.  It was paid into the account of the defendant and the cheque was cleared.  Nobody had noticed the mistake.

4. The second cheque, dated 21 November 2007, was also made out to “Good Luck International Limited”.  The defendant’s solicitors noticed the mistake and asked the plaintiff to issue a new cheque correctly made out to “Gold Luck International Limited”.  Completion was due to take place at noon on 25 November 2007.

5. There was a hurried exchange of correspondence but the problem was not resolved to the satisfaction of the plaintiff who refused to complete at the appointed time.  A few days later the defendant terminated the contract by accepting the plaintiff’s repudiation and forfeited the first deposit.

6. Thereafter the plaintiff issued proceedings for specific performance.  The defendant has counterclaimed, seeking a declaration that the deposit has been validly forfeited and the provisional agreement validly rescinded and damages.  This application is a defendant’s Order 14 summons on its counterclaim.

Preliminary procedural point

7. Before considering in greater detail the merits of the defendant’s application under Order 14 and Order 86 the plaintiff takes two procedural points.

8. The plaintiff’s counsel, Mr Lee Yee Hing, submits that pursuant to Order 14, rule 1(3), Order 14 does not apply to an action to which Order 86 applies.  Order 86(8) does apply to these proceedings (by virtue of the defendant’s counterclaim claiming rescission).

9. Mr Lee acknowledges that the summons was amended to include both Order 14 and Order 86 (which, on the face of it, answers his procedural point) but, he submits, the affirmation in support of the application which was filed before the amendment to the summons is said to be only “in support of the application under Order 14”.  There being no affirmation in support of any application under Order 86 it is defective.

10. I consider this to be without merit.  The note to Order 86(8) in the White Book states that “This rule enables a defendant who is counterclaiming for specific performance, etc. to apply for summary judgment bringing the position into line with that under Order 14, rule 5 for other counterclaims”.  In my judgment, therefore, the original affirmation is sufficient and does not require a technical amendment. 

11. Mr Lee’s second procedural point is that Order 86, rule 2 requires that “The summons must set out or have attached thereto minutes of the judgment sought by the plaintiff”.

12. I am satisfied that this means no more than that the defendant must set out, by individual paragraphs, the complete terms of the order it seeks in the summons.  This requirement has plainly been complied with.

The facts

13. There is little or no dispute as to the chronology of events leading up to and soon after the time for completion.

14. On 21 November 2007, the defendant first noticed the “typo” on the cheque.  In its letter to the plaintiff it enclosed Gold Luck’s business registration certificate and a copy of the provisional agreement with Loyal Channel showing the correct name.  It also undertook to amend the agreement with Loyal Channel from “Good” to “Gold”.

15. The next day the amended agreement with Loyal Channel which had been initialled by the defendant’s attesting solicitor was re-registered with the Land Registry.  A copy of the Land Registry lodgement receipt was sent to the plaintiff.

16. Four days later (and two days before completion) the plaintiff’s solicitors raised requisitions on the matter for the first time.  On the same day certified copies of the amended agreement with Loyal Channel and the lodgement receipt were sent to the plaintiff’s solicitors.

17. On 27 November, the plaintiff’s solicitors replied stating that the requisitions had not been properly answered because there was indeed another company in Hong Kong called Good Luck International Limited and that the amendment to the head agreement amounted to a “change of party” which was not re-registerable.  The defendant’s response was, by letter, that it was not a “change of party” but was the correction of a typographical error.  There was some further correspondence but the matter was not resolved and completion, due on 28 November, did not take place.

18. The defendant by counterclaim now seeks a declaration that the deposit has been validly forfeited.  There is a threshold onus on the plaintiff to show that there is a triable issue.  The plaintiff must demonstrate a fair or reasonable probability of having a real or bona fide defence.  In other words, is their argument that the defendant had not shown good title (in the sense that they had not shown that the true vendor was Gold Luck International Limited) a triable issue?

Good title?

19. The nature of the “good title” issue in this case is confined to the identity of the vendor.  Had the defendant satisfactorily shown to the plaintiff that the vendor was Gold Luck International Limited?

20. In Kan Wing Yau v. Hong Kong Housing Authority [1988] 2 HKLR 187, citations were made from earlier authorities on matters of principle as follows :

(i)    The vendor must be in possession of the estate and in a position to convey it without any blot or possibility of litigation to the purchaser. 

To this principle I would add that the “possibility of litigation” must not be a fanciful possibility.

(ii)  If the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the encumbrance, the court should declare in favour fo a good title shown.

21. In order to show good title, whilst emphasising throughout that the problem was no more than a clerical error involving the mistyping of a single letter, the defendant’s solicitors had provided the plaintiff’s solicitors, in good time prior to completion, copies of the defendant’s business registration certificate, the provisional head agreement (with Loyal Channel), the amended head agreement and the provisional agreement (between the plaintiff and the defendant).

22. Mr Kevin Pun, counsel of the defendant, correctly further points out the following unassailable facts :

(a)  The provisional head agreement named Gold Luck International Limited as the purchaser.  It also quoted Gold Luck’s correct business registration number.

(b) The head agreement identified the purchaser’s Chinese name correctly.  It also quoted the same business registration number and Gold Luck’s correct registered address as in the business registration certificate.  It was in this head agreement that the purchaser’s English name was first mistyped as “Good” instead of “Gold”.

(c) In the provisional agreement to sell to the plaintiff Gold Luck’s correct business registration number again appeared, although the mistyping of “Good” persisted.

(d) All three agreements were signed by the same director of “Gold Luck” and all three agreements were chopped with Gold Luck’s company chop which showed the company name in both English and Chinese.

(e)  All three agreements were attested properly.

(f)   The head agreement had been correctly amended from “Good” to “Gold” and initialled by the defendant’s solicitors.

(g)  The Land Registry had received and acknowledged the amendment.  Certified copies of the amended head agreement and receipt by the Land Registry had also been sent to the plaintiff’s solicitors.

23. Taking the matter in the round there was no doubt that the vendor was Gold Luck International Limited.  Its Chinese name was as quoted, its business registration was as quoted and its director was as signed.  Gold Luck had good title to the property.

The plaintiff’s reasons for not completing

24. The plaintiff’s primary arguments are as follows.  The amendment changing “Good” to “Gold” was only initialled by the defendant’s attesting solicitor.  There was no independent evidence that the plaintiff was not dealing with “Good Luck”.  There really was a company in Hong Kong called “Good Luck …”.  The first deposit cheque was made out to “Good Luck …” and cleared.

25. In my judgment these concerns were sufficiently dealt with by the defendant’s solicitors prior to completion, such that any risk of good title being subsequently challenged was illusory. 

26. As to whether the defendant’s solicitors’ initial was sufficient to validate the amendment, the Land Registry’s Circular No. 102 of 31 December 2006 deals with the situation.  Paragraph 1 states :

“1.  If a mistake in an already registered instrument is sought to be corrected and the mistake is considered by the Land Office to be non-material, the already registered instrument, as so corrected, may be re-registered by a fresh memorial provided the correction is initialled by the attesting solicitor or one of the parties to the instrument.”

27. Plainly, the correction of a clerical error was correctly regarded as “non-material”.  I am sure that if the error had produced a non-sensical word such as “Gokd Luck International Limited” or “Gojd Luck International Limited” (both close to “L” on the key board, as is “O”), the amendment would have been accepted without question.  However, in view of the totality of all the other factors, already referred to, the unfortunate fact that the error produced a real word, “Good”, does not take the error out of the “non-material” category.

28. Consequently the plaintiff’s solicitors’ reliance on paragraphs 2 and 5 of the same circular are misconceived :

“2.  If the mistake sought to be corrected in the already registered instrument is considered by the Land Office to be material but not to alter the legal effect of the instrument, the already registered instrument may be accepted for re-registration by a fresh memorial provided the correction is initialled by either one of the parties to the instrument and the attesting solicitors or by all the parties to the instrument.

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5.   If the correction amounts to an alteration of the legal effect of the instrument, re-registration of the already registered instrument will not be accepted.”

29. Mr Lee argued that the views of the Land Registry were irrelevant.  The important point is, I think, that the Land Registry’s views were plainly right.  The mistake was neither “material” nor did it change the “legal effect of the instrument”.  It is not necessary to have a trial to resolve the issue.  It can properly be dealt with at this stage.

30. As to whether the existence of another company with the name of “Good Luck …” affects the position, I am satisfied that it does not.  At the risk of being repetitive, the Chinese name, the business registration number and address and the commonality of signatures all point to the fact that the risk of the real “Good Luck …” challenging title was nil.

31. Moreover, the above matters provide sufficient evidence upon which the plaintiff should have proceeded.  The fact that such evidence may not be regarded as “independent” is neither here nor there.  There is no requirement that proof of title should come from “independent” sources.

32. Mr Lee finally submits that as the error was that of the defendant they should not benefit from it and the responsibility for fully clarifying the position rests on them.  With this I agree.  However, by this decision I have concluded that the defendant did clarify the position sufficiently and thus it cannot be said that they “benefited” from their own mistake.

Final remarks

33. With hindsight it is perhaps regrettable that more patience was not shown at the time.  It seems that, at the time, there was a willing seller and a willing buyer.  I was told also that at the time of this summons they were still a willing buyer and a willing seller.  However, the plaintiff would only complete at the original price, no more.  Thus, as each week passed a possible agreement became more remote.

34. Ironically, Loyal Channel Limited, the head vendor, confirmed it had no objection less than an hour after the deadline.  This would have allayed the plaintiff’s concerns but unfortunately it was too late.

35. I am satisfied that there could be no trial evidence which could materially alter the position with which the court is confronted in this Order 14 application.  I am satisfied that the defendant has made out its case and I make an appropriate order.  It is accordingly unnecessary to deal with the defendant’s alternate claim which was to strike out the plaintiff’s claim for specific performance.  This had been based on the argument that repudiation by failure to complete and a prayer for specific performance are inconsistent.

36. The observation of the Court of Final Appeal in Mexon Holdings Ltd v. Silver Bay International Ltd [2000] 1 HKLRD at page 942 is apposite :

“A good title does not mean a perfect title, free from every possible blemish.  Whenever a question like this arises … it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain”.

37. As to the appropriate order, and in an attempt to keep further litigation and costs to a minimum, and bearing in mind that the completion should have taken place less than a year ago, I make an order in terms of paragraphs 1(1), (3), (4) and (7).  It may be that an enquiry into damages will not be necessary, and costs thereby saved, depending, inter alia, on the movement of the property market since November 2007.  The important step is now to get the property back on the market as soon as possible.