WISE MARK TECHNOLOGY LTD AND ANOTHER v. WINCOME HOLDINGS LTD AND ANOTHER

HCA 12867/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12867 OF 1998

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J U D G M E N T

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Introduction

1. This action arose out of an abortive sale of Flat A, 30th Floor, Two Robinson Place, No. 70 Robinson Road, Hong Kong ("the Property"). The 2nd plaintiff's claim against the defendants having been disposed of earlier, the trial before me only concerns the dispute between the 1st plaintiff and the 1st defendant. For convenience sake, they will be referred to as the plaintiff and the defendant hereinbelow.

2. The facts are largely not in dispute. They may be summarized as follows.

Facts

3. The plaintiff is and was at all material times the registered owner of the Property. By a provisional sale and purchase agreement dated 18 March 1998, it agreed to sell the Property to the defendant for $16.1 million. Upon signing of the provisional agreement, the defendant paid a deposit of $483,000. The parties then entered into a formal sale and purchase agreement dated 1 April 1998 ("the Agreement"). Upon signing the Agreement, the defendant paid a further deposit of $1,127,000. The total deposit paid was thus $1,610,000, which was 10 % of the price. Completion was scheduled on 31 July 1998.

4. The relevant clauses of the Agreement are:

Clause 4(a):

The Vendor shall in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap.219) give and prove a good title to [the Property] ... and ... shall make and furnish to the Purchaser such attested, certified or other copies of any deeds or documents of title wills and matters of public record as may be necessary to complete such title...

Clause 5:

Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 working days after the date of receipt of the title deeds to Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the agreement)...

Clause 13:

Time shall be in every respect of the essence of this Agreement.

Clause 28:

There are incorporated into this agreement as if they were herein written the conditions respectively on the part of the Vendor and the Purchaser set out in Part A of the Second Schedule to the Conveyancing and Property Ordinance (Cap.219) PROVIDED that where there is any conflict between such conditions and the terms and conditions herein contained, the latter shall prevail.

5. On 3 April 1988, the plaintiff's solicitors sent the title deeds and documents of the Property to the defendant's former solicitors. A total of 240 documents were delivered ("the April documents"). Because of the intervening holidays, the deadline for raising requisition under Clause 5 fell on 17 April. On that day, the defendant's former solicitors raised 3 requisitions on title by letter. The reply of the plaintiff's solicitors came on 21 April, which ended by this sentence:

"We trust that all your requisitions have been satisfactorily replied."

Nothing further was heard from the defendant's former solicitors.

6. On 23 July, the defendant changed solicitors. On 28 July, the new solicitors wrote to the plaintiff's solicitors. The letter began with:

"Upon perusal of the title deeds and documents of the Property, we have the following requisitions on title..."

It is not in dispute that the title deeds and documents referred to were the April documents. A total of 38 requisitions were then raised ("the New requisitions"). They fell into two groups:

(1) Request for production of certain documents not disclosed before. In this connection, there were altogether 11 requests. At the trial before me, the defendant contends that 4 of them could not have been raised from perusal of the April documents. Of the 4 requests, one was for the production of the certified copy of Assignment Memorial No 26554 dated 1 December 1899 and registered on 11 December in the same year ("1899 Assignment"). The defendant accepts that the other 7 requests could have been raised upon perusal of the April documents.

(2) Requisitions on the April documents.

7. What followed was an exchange of correspondence between the solicitors. In brief, the effect of the correspondence is this. The plaintiff's solicitors, relying on Clause 5, rejected the New requisitions (letter of 27 July). The defendant's solicitors then sought to justify their entitlement to raise the New requisitions on two grounds (letter of 28 July). First, since some of the title documents had not been supplied, Clause 5 did not apply. Secondly, the time limit for raising requisitions did not have effect on matters going to the root of the title. The plaintiff's solicitors did not agree (letter of 29 July). The defendant's solicitors insisted on the right to raise the New requisitions (letter of 30 July) and refused to complete as the plaintiff had not answered them. Eventually, completion did not take place on 31 July as scheduled.

8. On 1 August 1999, the plaintiff commenced the present action claiming against the defendant for specific performance and damages. However, back on 23 November 1998, the plaintiff had already purported to accept the defendant's repudiation and subsequently registered a memorandum of rescission. The statement of claim was later amended to delete the claim for specific performance.

9. In its defence and counterclaim, the defendant essentially relied on the matters raised in its correspondence as its defence. The defendant counterclaimed against the plaintiff for return of the deposits and damages for breach of the Agreement, being the stamp duty and estate agent's fees paid.

10. For present purposes, the parties agree that the market value of the Property as at 31 July 1998 (the completion date under the Agreement) and 23 November 1998 (the date when the plaintiff accepted the purported repudiation of the defendant) was $11.6 million and $11.7 million respectively.

Issues

11. There are two primary issues arising from parties' submissions, namely:

(1) Whether the time limit for raising requisitions under Clause 5 started to run only after the plaintiff had supplied all the title documents, it was obliged to provide to prove good title.

(2) Whether the New requisitions went to the root of the title so that they might be raised out of time.

I will deal with them in turn.

When time limit started to run under Clause 5?

12. On this issue, the submission of Mr Li, counsel for the plaintiff, is straightforward. The courts have all along been giving effect to clauses like Clause 5. See, e.g., Jumbo King v Faithful Properties Ltd &Others [1999] 3 HKLRD 757 and Mexon Holding Ltd v Silver Bay International Ltd [2000] 1 HKLRD 935. Time under Clause 5 started to run after the plaintiff had delivered title documents. It was then up to the defendant to raise within the time limit requisitions to ask for any missing title deeds or documents. In this connection, counsel relies on Ko Lan v Hoo Man Kuen Martin & another HCMP No. 4416 of 1998, an unreported decision of Mr Recorder Edward Chan, SC.

13. There, the 1st sentence of clause 10(1) of the sale and purchase agreement provided that any requisitions on title should be raised within 7 working days after receipt of the title documents. (Its actual terms are substantially the same as those in Clause 5 quoted above.) The 2nd sentence provided that any further requisition on the reply to the requisitions raised within time should be made within 7 working days from the reply. Title deeds were delivered to the purchaser on 28 May 1998. The purchaser then raised two requisitions on 1 June. The vendor's reply came on 3 July. The purchaser was not satisfied with it and made a response to it on the same day. On 19 August 1998, the purchaser raised four further requisitions, including one for the production of a mortgage memorial and one for the production of a certificate of compliance. The vendor took the stance that these requisitions were raised out of time under clause 10(1) and refused to answer them. Before the learned Recorder, insofar as the time limit was concerned, the relevant requisitions were those raised on 19 August relating to the memorial mortgage and the certificate of compliance. The purchaser argued that in order to trigger the time limit for them to be raised, the vendor must first provide all the title deeds and documents which it was obliged to deliver to show good title. The learned Recorder rejected the argument on two grounds. At pp. 11 and 12, he said:

"I am unable to accept this submission for 2 reasons. First, if the contention is right, it would mean that there was in fact no time limit for requesting for further title deeds or documents at all. The words "Title deeds or documents" were very wide. They include those documents which could be properly described as "Title deeds" as well as any other documents so long as they were relevant for the purpose of showing good title. Hence on this contention, so long as the title deeds or documents requested for related to the proof of good title, the purchaser could ask for them at any time before completion. This would wholly defeat the purpose of any provision to limit the time for the raising of requisitions. Secondly, I am of the view that clause 10(1) must be construed as a whole. The 2nd sentence to clause 10(1) plainly envisaged the situation that there would be requisition raised upon the receipt of title deeds and documents. When these requisitions were answered, the purchaser may find it necessary to raise further requisitions arising from the answer. Thus if the vendor should fail to deliver all the necessary title deeds then the purchaser would be able to request for the missing ones. When the same are supplied, the purchaser will have another 7 working days to raise further requisitions arising from those documents supplied in answer to the request. The purchaser's contention, if correct, would in effect mean that the 2nd sentence in clause 10(1) would only operate when the requisition raised or answer thereto do not relate to supply for any further title deeds or documents. I see no reason for such contention."

The learned Recorder therefore held that any requisition or objection in respect of title which the purchaser could raise from the title deeds and documents delivered by the vendor must be raised within 7 days from the delivery of those title deeds and documents.

14. Mr Chong, counsel for the defendant, contends that time did not start to run under Clause 5 until the plaintiff had delivered all the title documents it was obliged to deliver to prove good title. His argument, in brief, runs like this. On a proper construction of Clause 4(a), read together with section 13 of the Property and Conveyancing Ordinance ("the Ordinance"), the plaintiff was under a primary duty to furnish all title documents without request or demand in order to show good title. The time limit in Clause 5 began to run after the receipt of title documents supplied. If no requisition had been raised on the documents supplied, the defendant would be deemed to have waived requisition on those documents supplied only. The plaintiff was still obliged to provide all missing documents to be supplied under Clause 4(a).

15. Counsel submits that Ko Lan was wrongly decided. In this connection, he relies on Yeung Sau Chuen Sammy v Chung Chun Tung & another HCMP No. 4080 of 1992, a decision of Godfrey J (as he then was), reported in [1997] 4 HKC 34. There, the purchaser's solicitors raised requisitions and requested to have for inspection, inter alia, photocopy of certain title documents, namely, two debentures and reassignments. No copies of the debentures and reassignments were delivered until what purported to be certified copies of them were sent to the purchaser's solicitors 2 days before the completion date. The purchaser did not complete. Holding that the vendor had failed to show a good title, the learned judge said at p.36 C - D:

"The contract contained the standard provision (in relation to the documents of title and requisitions thereon) to the effect that requisitions had to be delivered within seven working days after the receipt of the title deeds by the purchaser's solicitors. When not all title deeds are delivered, and there are others which are delivered later, it follows that in relation to those title deeds of which copies are delivered late, the purchaser's solicitors must have seven working days after their receipt to consider those documents."

16. Alternatively, counsel submits that Ko Lan is a decision on its own facts and thus distinguishable. He submits that the terms of clause 10(1) were different from those under consideration here and that the learned Recorder was only dealing with the raising of further requisitions under the 2nd sentence in clause 10(1). His reasoning therefore had no application here.

17. In my view, the combined effect of Clauses 4(a) and 5 is this. The duty imposed by Clause 4(a) on the plaintiff to prove good title is discharged upon compliance with Section 13 of the Ordinance. Under Clause 4(a), the plaintiff would deliver the necessary title deeds and documents to the defendant for the purpose of proving good title. They must be delivered sufficiently long in advance of the completion date to give the defendant's solicitors a proper opportunity of considering those documents and raise requisitions. Requisitions, if raised, take various forms. It may arise from the title documents already produced. It may concern title documents which the plaintiff, in the defendant's view, has not produced for proving a good title. It may have nothing to do with documents at all. For example, there may exist matters arising from unauthorized structure. If the defendant decided to raise any requisitions on title, including those relating to missing title documents, Clause 5 then required it to be done within 7 working days after receipt of the title documents. (The above is, of course, subject to the rules governing when matters going to the root of title may be raised out of time. I will come to them when dealing with the 2nd issue.)

18. I am unable to accept Mr. Chong's contention. First, his contention unduly restricts the meaning of the words "any requisitions" in Clause 5: requisitions on missing title documents are excluded. I do not see any justification for such a construction. Secondly, his contention ignores the reality that the defendant had to respond to the plaintiff's endeavour to prove title by delivering the title documents. Either the defendant accepted that title was duly proved or raised requisitions on title. If it chose to raise requisition, it must do it within the agreed time limit. It his contention were correct, the following could happen. The defendant noticed that certain title documents were missing from the title documents delivered. It did not raise any requisitions. Instead, it simply sat on the matter, let the time limit in Clause 5 expire, and at the time of completion, refused to complete on the ground that the plaintiff had failed to prove good title. That is hardly what the parties had contemplated. If that were permissible, it would defeat the whole purpose of imposing a time limit and waiver in Clause 5. Thirdly, the first reason of the learned Recorder in Ko Lan quoted above is applicable here. Accordingly, I reject Mr. Chong's submission on the combined effect of Clauses 4(a) and 5.

19. It is apparent from the above that I do not accept Mr. Chong's submission that Ko Lan was wrongly decided or not applicable. I will set out my reasons below.

20. First, on the question of correctness. The learned Recorder's conclusion must be correct and his reasoning cannot be flawed. When examined more closely, Yeung Sau Chuen Sammy does not support Mr. Chong's proposition that time only started to run after the plaintiff had delivered all title documents. There, the purchaser had made a specific request for the title documents when raising requisitions. There was no suggestion that the requisitions were raised out of time. When the vendor only delivered the documents 2 days before completion, the purchaser was of course entitled to have 7 working days to consider them. The judgement of Godfrey J quoted above, when properly understood, does not lay down a general proposition that time would only start to run when all title documents the vendor was obliged to deliver in order to prove title had in fact been delivered.

21. Secondly, on the question of applicability. The terms of the 1st sentence of clause 10(1) in Ko Lan were substantially the same as those of the relevant part of Clause 5. The general effect of both clauses is also the same: the purchaser must raise the requisitions according to the time limit the parties had bargained for and agreed. It should be noted that the requisitions in Ko Lan concerning the mortgage memorial and the certificate of compliance were not further requisitions following from a reply of the vendor to the requisitions raised previously, for which the 2nd sentence of clause 10(1) would be applicable. Accordingly, contrary to Mr. Chong's submission, the learned Recorder was in fact dealing with the effect of the 1st sentence of clause 10(1).

Whether in any event the New requisitions could be raised?

22. It had been held in Giant River Ltd v Asie Marketing Ltd [1009] 1 HKLR 297 that requisitions which go to the root of the title may be raised even after the contractual period for doing so has expired. However, where a purchaser should, having used due diligence, be aware of a potential title defect, he must raise his requisitions within the time limit and may not, simply by virtue of the fact that the alleged defect goes to the root of title, raise the requisition out of time: Hiller Development Ltd v Tread East Ltd [1993] 1 HKC 285. The first question is therefore whether any of the New requisitions affected the plaintiff's title.

23. As noted, Clause 4(a) required the plaintiff to prove title in accordance with Section 13 of the Ordinance. It is not in dispute that the Crown lease here was more than 15 years old. Thus the plaintiff was obliged to produce the intermediate root document under Section 13(a)(ii). The parties further agree that an assignment dated 18 August 1981 and registered as Memorial No. 2136897 on 15 September 1981 is the intermediate root document. And it had already been delivered as part of the April documents.

24. Of all the 38 new requisitions raised, Mr. Chong only relies on the requisition on the 1899 Assignment as matters going to the root of title. He argues that under Clause 4(a) the plaintiff was obliged to produce the title documents to complete title. This is a more onerous duty than that under Condition 9 of Part A of the Second Schedule of the Ordinance ("Condition 9"), which requires the vendor to furnish the title documents as may be necessary to prove such title. Accordingly, the plaintiff must produce the 1899 Assignment, failing which, the plaintiff had failed to prove title.

25. Mr. Li relies on Dawson Properties Ltd v Hong Kong Niroku Ltd [1997] 2 HKC 800 and submits that the plaintiff was not obliged to prove its title between the Crown lease and the intermediate root of title. Thus it was not required to produce the 1899 Assignment. In Dawson, the relevant provision required the vendor to prove title by furnishing the title deeds and documents as may be necessary to complete such title. Condition 9 was also incorporated. Cheung J. held that in an open contract where there was no contractual provision on the duties of the vendor, the law implied that the vendor had an obligation to show and make a good title; that it could hardly be argued that the vendor's obligation regarding title was the one set out in Section 13(1) of the Ordinance, which was subject to the contrary intention of the parties; that where the agreement required the vendor to prove title by reference to Condition 9, that obligation was also discharged by compliance with Section 13(1); and finally that the vendor was not obliged by law to prove its title between the Crown lease and the intermediate root of title.

26. Mr. Chong submits that Dawson is distinguishable because of the more onerous duty imposed on the plaintiff by Clause 4(a).

27. For my part, I have difficulty to see any real distinction between proving title and completing title in the present context. In any event, the obligation under Clause 4(a) would be discharged upon compliance with Section 13. In the present case, what Section 13 required was the proof of the chain of title from the intermediate root to the date of the Agreement, and not the proof of chain of title from the Crown lease to the intermediate root. Dawson is directly applicable here and I would follow it. Accordingly, I do not accept that the requisition on the 1899 Assignment went to the root of the title. The defendant was not entitled to raise it out of time.

28. By reason of the foregoing, it is not necessary to consider the question of due diligence on the part of the defendant.

Conclusion

29. In the circumstance, I find that the defendant was not entitled to raise out of time any of the New requisitions; that it was in breach of the Agreement when it failed to complete; and that the plaintiff was entitled to accept its repudiation on 23 November 1998.

30. The plaintiff has not re-sold the Property. Relying on Yeung Leung Wai Kwan v Tsang Nui Tai [1999] 3 HKC 618, Mr. Li submits that the plaintiff is entitled to claim for loss of bargain. The plaintiff does not pursue any consequential loss. The loss of bargain is represented by the difference between the contract price and the price of the Property as at the date when the plaintiff elected to accept the repudiation, that is, 23 November 1998. The difference in monetary terms is $(16.1 million - 11.7 million) = $4.4 million. Credit must be given to the deposits paid. There will be a deduction of $1,610,000 accordingly. The net is therefore $2,790,000.

31. Mr. Chong does not serious dispute the above. His only complaint is that the plaintiff had failed to mitigate its loss. Essentially, he submits that had the plaintiff chosen to complete the sale with the defendant by answering the New requisitions, then it would not have suffered the loss. He is referring to the "offer" contained in the defendant's letter dated 28 July 1998 to complete the sale after the contractual date should the plaintiff answer the New requisitions. Counsel submits that the plaintiff should have accepted the offer, answered the New requisitions and completed the sale.

32. I am unable to accept Mr. Chong's argument. Mitigation refers to the steps taken by the injured party consequent upon the breach of the contract to reduce its loss. The defendant's letter of 28 July was issued two days before the contractual completion date, when no breach on the defendant's part had taken place yet. In any event, the defendant was not entitled to raise any of the New requisitions out of time and the plaintiff was entitled to reject them. How would it be reasonable to expect the plaintiff to accept the "offer" to answer the New requisitions and then complete the sale?

33. For the above reasons, I would enter judgement for the 1st plaintiff against the 1st defendant in the sum of $2,790,000 with interest from the date of writ to payment at the judgement rate. I would also dismiss the 1st defendant's counterclaim.

34. In respect of costs, I would make an order nisi that the 1st plaintiff shall have its costs of the action against the 1st defendant, to be taxed if not agreed. The order nisi is to be made absolute after 14 days of handing down.