YUNG CHUEN and Others v. WAY HING DEVELOPMENT CO. LTD.

1994, No.A4431

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

----------------------

-----------------

------------------------

J U D G M E N T

------------------------

1. This is an action by the Plaintiffs against the Defendant Company for breach of a Sales and Purchase Agreement of land property. In the transaction the 1st named Plaintiff Mr Yung Chuen was the lawful attorney of the 2nd and 3rd named Plaintiffs. Mr Tang, a director and shareholder of the Defendant Company, was authorized to testify for and on behalf of the Defendant in these proceedings.

Background and Chronology of Events

2. The Plaintiffs are the registered co-owners by way of tenants in common of Lot No. 361 in Demarcation District 204 in Yung Shu Au, Sai Kung. By a written agreement in Chinese dated 2 April 1992 the Plaintiffs agreed to sell to the Defendant the land together with two residential blocks of three-storeys each with one flat on each floor for the sum of $6 million. The Plaintiffs were responsible for construction of the buildings and the costs thereon.

3. The material provisions in the Agreement are these:

"1 The purchase price for the Land together with 2 blocks of buildings thereon is HK$6 Million. The purchase price shall be paid in the following manners:-

(a) the Purchaser shall pay HK$100,000 to the Vendor as deposit upon signing of this Agreement.

(b) On or before 22nd April 1992, upon signing of the formal agreement for Sale and Purchase, the Purchaser shall pay HK$200,000 to the Vendor or his appointed solicitors.

(c)    (i) Upon commencing of the building work in the construction site, a deposit of 5% shall be paid i.e. HK$300,000.

(ii) Upon completion for the platform work on the ground floor, a further deposit of 5% shall be paid i.e. HK$300,000.

(iii) Upon the completion of the concrete framework for the slanted roof, a further deposit of 5% shall be paid i.e.HK$300,000.

(iv) After receiving the Occupation Permit issued by the relevant Land Office concerning the land, the Purchaser must within 20 days thereof settle the outstanding balance, which amounted to HK$4.5 million and complete the purchase.

2 If it is found by the Land Office that the development or construction (in respect of the land) does not comply with the Government Legislation or policy which caused the refusal of issue of the Certificate of Compliance by the Land Office, the Vendor shall comply with the instruction given by the Land Office or the relevant authority and forthwith complete the works until the issue of the Certificate of Compliance.

3 the Vendor warrants that the cost incurred on the development of the land including all construction costs and other costs such as developing the construction site, building of roads, building the superstructure, architect fees, connection of water and electricity (excluding the deposits for water and electricity) and interest must not less than HK$650,000. The interior design and structure of each floor and its building materials must be in conformity and the building materials must be in accordance with the schedule.

4 Upon completion of construction, the Vendor agrees to forthwith lend (sic) the buildings in vacant possession to the Purchaser if the Purchaser has paid in accordance with the manner of payment as described above.

5 Upon final payment of the balance of the purchase price or completion of the Sale and Purchase, the Vendor shall execute all relevant assignments and must sign the title to the land to the Purchaser and forthwith deliver vacant possession to the Purchaser...."

4. It would be of interest to note here that the Agreement has no provisions for:

1 the date of completion of the building works;

2 car parking spaces to be provided for the residential units;

3 forfeiture of deposit by the Vendor upon the Purchaser's default.

5. At sometime after the Agreement, the exact date of which is not known, the lay-out of the flats were altered so that each unit would have 5 bedrooms. The alterations were made with a view that flats could be used for letting as holiday accommodations.

6. On 5 August the parties entered into a Supplemental Agreement whereby clause (c)(iv) of the original agreement was amended. This was also the first time when reference is made in the Agreement for the Defendant to provide originals of the title documents. The new provisions include :

"1 the structure of the Building is to be constructed in accordance with the building work plan submitted by the Purchaser;

2 Clause (c)(iv) of the Provisional Agreement in relation to the date of final payment shall be deleted and amended as follows :

(a) Before the Purchaser make the final payment, the Purchaser and the Vendor must have received the Occupation Permit issued by the relevant Lands Office.

(b) Before the Purchaser makes final payment, the Vendor must supply the original copy of all title deeds and relevant documents of that piece of land and verified to be correct by the solicitors of the Purchaser.

(c) After the Purchaser has received the documents stipulated in (a) and (b), it must not later than 30th November 1993 make final payment of HK$4.5 million to the Vendor and must complete the purchase.

(d) It is not essential for the Purchaser to make final payment after the issue of the Occupation Permit."

7. On 17 November 1992 certified copies of the title deeds were delivered to the Defendant's solicitors. Despite clause 2(b) above the Defendant did not insist that it would require original copies of the documents supplied.

8. By early 1993 a total of $1.5 million was paid over to the Plaintiffs by the Defendant.

9. In a letter dated 29 April 1993 the District Land Officer informed the Vendor that there is no objection for the Plaintiffs to occupy the new blocks and the Defendant was so informed. In the same month the Defendant entered into possession of the two blocks and commenced letting the units as short-term budget holiday accommodations.

10. The Agreement between the parties, as it stood then, was that completion and payment of the balance of $4.5 million was scheduled on 30 November 1993. The Defendant was so reminded by a letter from the Plaintiffs' solicitors by letter on 6 November. There was, however, neither completion nor payment on the agreed date.

11. A week later on 6 December 1993 the Plaintiffs, through their solicitors, gave formal notice to the Defendant for completion within 21 days.

12. It was not until 24 December that the Defendant responded through its solicitors. The Defendant relied on the Supplemental Agreement of 5 August 1992 and insisted that all originals of the title documents should be supplied. In the same letter it also insisted on the production by the Plaintiffs of a Certificate of Exemption in respect of the new buildings. It was also raised for the first time the question that construction of the six carparks had not been carried out or completed. The effect of the letter was that because the Plaintiffs had not fulfilled their obligations the Defendant refused to complete.

13. On 15 January the Defendant proposed a further amendment to the payment of the balance of $4.5 million. In a written document of the same date the Defendant proposed that instead of one single payment of $4.5 million, there would be three equal payments of $1.5 million each to be made on 2 February 1994, 30 November 1994 and 30 November 1995. The new proposal, if accepted by the Plaintiffs, would have the effect of spreading out the payment over the next year. The Plaintiffs, quite understandably, rejected the proposal.

14. By a letter dated 19 January 1994 the Plaintiffs notified the Defendant that the date for completion is to be on 1 February 1994. The Defendant maintained its position as stated in its letter of 24 December and refused to complete.

15. On 3 February the Plaintiffs terminated the Agreement and re-entered the properties on 16 March 1994.

16. The Plaintiffs now claim forfeiture of $1.5 million and damages for the Defendant's breach of contract. The Defendant by counterclaim contends that it has suffered damages by the Plaintiffs' breach and repudiation of the Agreements. Further the Defendant claims for the return of all moneys paid under the contract. The Defendant's claims for trespass and detinue is not pursued.

The Issues

17. There are four issues before the court and they are :-

1 Whether the Plaintiffs has an obligation to provide six car parking spaces to the Defendant as part of the transaction.

2 Whether on proper construction of the Agreements, the Plaintiffs were obliged to produce originals of the title documents.

3 Whether the Plaintiffs were entitled to terminate the Agreement and re-enter the properties.

4 Whether the Plaintiffs are entitled to forfeit the moneys paid by the Defendant and if so, what amount.

The Evidence

18. Both parties called two witnesses.

19. The first witness Mr Yau was the estate agent who handled the transaction. His evidence was followed by that of Mr Yung who is one of the registered co-owners of the land and he was also the attorney of the other two named Plaintiffs in this case. Having observed them carefully when they were giving evidence, both impressed me as honest and truthful witnesses. What was being criticized by Defense Counsel as evasion is no more than forgetfulness of details after a long lapse of time. I accept their accounts of the material events.

20. On the contrary, Mr Tang, a director and shareholder of the Defendant Company, was not at all forthcoming as a witness. Mr Tang had been in the business of letting holiday villa for some years. He told the court that he had made it clear to the estate agent and Mr Yung from the very beginning that the Company was buying the property for use as short-let holiday accommodation. He would require a car parking space for each of the six units as they could not be let without sufficient parking facilities. He took much time to answer simple and straightforward questions put to him even by his own Counsel and I do not think this is attributable to his being cautious.

21. If what Mr Tang told the court was true, then I cannot understand why it was only after the Provisional Agreement was signed in April that the Defendant requested the Plaintiffs to make alterations to provide five rooms on each floor. It was inconvenient, it caused delay and it incurred extra costs.

22. I think the true position was that when Mr Tang negotiated for the purchase he had never disclosed his true intention of using the properties as budget holiday accommodations for fear of objections from local indigenous villagers who would consider holiday makers as an intrusion and disruption to their quiet way of life. The request for additional rooms to be partitioned in both buildings is consistent with disclosure of Mr Tang's intentions only after the provisional agreement was concluded between the parties.

23. The next area of evidence which undermines the credibility of Mr Tang was the proposed Amended Agreement dated 15 January 1994 which the Plaintiffs had refused to sign. The effect of the proposal was to postpone full payment of the final balance of the purchase price of $4.5 million. The sum was originally due on 30 November 1993. The Defendant by then had taken possession of the buildings and had been letting out the units for some seven months. Despite Mr Tang's assertion in court that the Company has no difficulties in financing the purchase in November 1993, he was unable to come up with any documentary evidence to support his assertions and I think the true position must be to the contrary : the Defendant was short of funds.

The Carparks

24. There is no reference in the Agreement or any of its supplements of provisions for any number of carparks. Mr Tang claims that during the negotiation for the sale of the property Mr Yung warranted that there would be 6 carparking spaces and that there was no need for the inclusion of such arrangements into the Agreement. Mr Tang informed the court that prospective buyers would not be interested in properties without carparks. Again I am not convinced that Mr Tang is entirely truthful about the Defendant's position on the carparks. If indeed they were so important to him then, being an experienced developer as he was, I cannot see any reason why the Agreements were silent about them and it was only when the Plaintiffs was pressing for completion that the issue was raised for the first time as a reason for refusing to complete. There is uncontroverted evidence that at all material times after the Defendant had taken possession of the buildings, a number of carparks were available for the customers' use.

25. On the evidence before me I find that it was never a term of the Provisional Agreement or in any of the subsequent amendments that the Plaintiffs were under an obligation to provide any number of carparks for the Defendant. I find no merits in the Defendant's counterclaim that the Plaintiffs were in breach of their undertaking to provide carparks.

Originals of the Title Documents

26. There was no provision in the Original Agreement that the Plaintiffs were to supply the originals of the title documents. The requirement of "originals" was first mentioned in the 5 August amendment to clause (c)(iv) of the Provisional Agreement. On 17 November 1992 certified copies of the relevant title documents were forwarded to the Defendant's solicitors. No objections were raised by the Defendant of the Plaintiffs' failure to comply with the contractual provisions to supply originals of those documents. It was not until more than a year later in December 1993, and under pressure from the Plaintiffs to complete, that the Defendant raised the issue of the original documents together with that of the carparks.

27. The position of the Defendant was such that on the strength of the certified copies he entered into possession of the buildings and conducted business. It was fully aware that part of the title documents consisted of a Block Crown Lease the original of which is with the District Land Office and it would not have been possible for the Plaintiffs to supply the original of the Block Crown Lease for the Defendant's solicitors. The Defendant nevertheless insisted on the Plaintiffs performing the impossible. One of the remedies open to the Defendant at that stage was to take out a Vendor and Purchaser summons and to enlist the assistance of the Court. Having said that, I think on the true construction of clause 2(b) of the Amended Agreement dated 5 August, the provisions therein does not preclude the Plaintiffs using certified true copies. Section 13(1) of the Conveyancing and Property Ordinance, Cap 219 requires a vendor to produce the Crown Lease of the land sold unless the parties had contracted otherwise. Subsection (2) provides that :

" Where this section requires the production of any document, it shall be sufficient to produce a copy....

(a) .....

(b) certified by a public officer or a solicitor to be a true copy."

28. In Wong Wai Man v. Tang Tat Chiu 1992 MP 4172 (unreported) it was held by P. Chan J, that :

" A certified true copy of a document must by definition and necessary implication be the same as the original".

This I respectfully agree.

29. By supplying the certified true copies as they did I find that the Plaintiffs had discharged their obligations under the Agreement. The Defendant's allegation that the Plaintiffs were in breach of the 5 August Amended Agreement to provide the originals of all title documents is without merit.

The Plaintiffs' Termination

30. The conduct of the Defendant must be looked at as a whole in this transaction and I think it is such that the Defendant had behaved in a tricky and unfair manner throughout this transaction. The basis of my observation is from the events of altering the partitions of the flats, the issue relating to the carparks, taking possession of the completed buildings and conducting business thereon for some ten months and finally culminating in the insistence of original of all documents. The conduct of the Defendant gives me the distinct impression that it was deliberately trying to delay its obligation to pay the balance of the purchase price with whatever excuse which was convenient at the time.

31. By notice contained in the letter dated 19 January 1994 the latest time for completion was scheduled for 5 p.m. on 1 February 1994. The Defendant failed to complete and I find that the Defendant was in breach of the Agreement and the Plaintiffs are therefore entitled to terminate the Agreement by the letter dated 3 February and re-enter the properties.

Forfeiture of Deposit

32. There was no express provision in the Agreement to enable the Plaintiffs to "forfeit" the payments made by the Defendant. The law, as I understand it, is that a seller may forfeit moneys paid as a deposit even without any express enabling provisions in the agreement. The question that follows in this case is therefore: what is the amount of the deposit paid by the Defendant?

33. The purchase price of the properties is $6 million. A sum of $100,000 was paid as a deposit on 2 April 1992 when the Provisional Agreement was signed. A further sum of $200,000 was paid on 28 April, a date which the parties agreed that the formal sales agreement was to be signed. I have no difficulty holding that the aggregate of the two payments, that is $300,000, is a deposit and stated as such in the Provisional Agreement.

34. Between June to November 1992 a number of subsequent payments amounting to $1.2 million were made by the Defendant. By the end of 1992 the total amount of money paid over to the Plaintiffs was $1.5 million. Counsel for the Plaintiffs argued that the entire sum of $1.5 million should be treated as a deposit so that it should be forfeited to the Plaintiffs. This contention cannot be correct. The subsequent payments, as stipulated in the Provisional Agreement, were progressive payments made in accordance with the construction schedule of the buildings. Despite the term "further deposits" were used, I am of the view that they are not deposits as such but installment payments of the purchase price.

35. The deposit of $300,000 represents 5% of the total purchase price and it is only half of the usual deposit of 10%. If on the other hand, the entire sum of $1.5 million was meant to be a deposit, then it would be 25% of the total purchase price. It is much too high for a deposit. On the evidence I find that the sum of $300,000 is a genuine estimate by the parties of the liquidated damages in the event of a breach. I hold that the Plaintiffs are entitled to forfeit the sum of $300,000 and not the full amount of $1.5 million. As for the sum of $1,200,000, I find that it was the aggregate of payments made by the Defendant on account of the purchase and the Plaintiffs are therefore under a duty to make restoration of the same to the Defendant.

36. The counterclaim of the Defendant succeeds to the extent that it can recover $1,200,000 from the Plaintiffs.

Damages

37. In addition to the Plaintiffs' right to forfeit the deposit, the Plaintiffs are also entitled to claim damages from the Defendant's breach of the Agreement. I am surprised, however, that the Plaintiffs have adduced no evidence before the court to substantiate their claim to any special damages. The claim for extra cost is not sustainable because under the Agreement the Plaintiffs were responsible for all construction costs and therefore the issue of extra cost could not have arisen. Any claim for damages by the Plaintiffs under this head must therefore fail. There is also a half-hearted attempt by Counsel for the Plaintiffs to argue that the damages suffered by the Plaintiffs is around the sum of $820,000. But how he managed to arrive at this figure is not entirely clear from the evidence. The claim for special damages must therefore fail.

38. The normal measure of general damages is the contract price less the market price of the properties at the time fixed for completion. The Plaintiffs have elected not to place any evidence before the court as to the market value of the properties in February 1994 and I think this is by choice rather than by inadvertence. There is nothing to enable me to come to any finding as regard the damages suffered by the Plaintiffs and the claim for general damages must be dismissed.

Orders

39. I give :

1) Judgment for the Plaintiffs on the main claim with costs.

2) Judgment for the Defendant on its counterclaim with costs.

40. The Plaintiffs are to return the sum of $1,200,000 to the Defendant within 21 days of this order.

41. It is declared that the Plaintiffs are entitled to vacant possession of the parcel of land and the buildings erected thereon at Lot No. 316 in Demarcation District 204, Yung shu Au, New Territories.

(K.K. Pang)

Judge of the High Court