CHIEF ACCESS LTD v. LAU KWONG WING AND ANOTHER

HCA 892/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 892 OF 2011

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D E C I S I O N

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1. This is an appeal by the defendants against the order of Master de Souza dated 31 October 2011 giving summary judgment to the plaintiff in the sum of HK$1,397,648.08 with interests and costs against the defendants.

Background

2. The defendants are husband and wife.

3. On 14 December 2009, the plaintiff entered into a Provisional Sale and Purchase Agreement (“the Provisional SP Agreement”)with the defendants whereby the plaintiff agreed to purchase and the defendants agreed to sell the property being the Rear Flat on the 1^st floor of No 311C Prince Edward Road West, Kowloon (“the Property”) at the price of $11 million.

4. The Property was part of a total of 6 properties described in Clause 9 of the Provisional SP Agreement.  The plaintiff purchased the 6 properties with a view to demolishing them and for redevelopment.

5. Clause 6 of the Provisional SP Agreement provided that the defendants shall sell the Property to the plaintiff free of all incumbrances and indebtedness upon completion and that the defendants shall transfer the full and complete title of the Property to the plaintiff upon completion.

6. A formal Sale and Purchase Agreement (“the Formal SP Agreement”) was entered into by the parties on 2 March 2010.

7. Clause 3 and 7 of the Formal SP Agreement provided that the defendants shall sell the Property to the plaintiff free of all incumbrances upon completion.

8. By Clause 29 of the Formal SP Agreement, the defendants declared and confirmed that save and except the mortgage (if any) mentioned in Part VII of the Schedule thereto, no third party has any right or interest whatsoever whether legal or equitable in the Property.

9. Under Part VII of the Schedule of the Formal SP Agreement, the defendants declared and confirmed that there was no other third party claim to the Property whether legal or equitable.

10. The defendants further confirmed and declared in Clause 29 of the Formal SP Agreement that in the event of any third party claims to the Property whether legal or equitable, which the defendants were unable to settle or discharge on or before completion, the defendants shall forthwith return the deposit to the plaintiffs without prejudice to the plaintiff’s right to claim against the defendants for all losses and damages sustained.

11. Clause 29 expressly provided that the provision shall survive completion of sale and purchase of the Property.

12. On 10 May 2010, the plaintiff paid the full purchase price of $11 million to the defendants upon completion and the necessary Assignment was executed by the parties in respect of the Property.

13. On 22 December 2010 the plaintiff entered into the 1^st Memorandum and the 2^nd Memorandum with other companies within the same group for the sale and purchase of the said 6 properties to facilitate the real property development project involving those 6 properties, the completion date of which was set for 30 June 2011.

14. Sale and purchase of the said 6 properties, including the Property, set out in the 1^st Memorandum and 2^nd Memorandum were completed on 9 May 2011.

Plaintiff’s case

15. It is the plaintiff’s case that on 22 March 2011, Messrs Ng & Shum, solicitors acting for one Chiu Yu Fong who is the plaintiff in High Court Action No 6099 of 1999, informed the plaintiff that a Charging Order was registered against the Property.

16. Upon further investigation by the plaintiff, the following matters came to the plaintiff’s attention, namely:

(a)  On 16 December 1997, the 1^st defendant owed a sum of HK$650,000 to one Wong Tse Keung;

(b)  When Wong Tse Keung passed away, his widow Chiu Yu Fong was granted Letters of Administration of his estate.  Chiu Yu Fong then commenced High Court Action No 6099 of 1999 against the 1^st defendant for repayment of the debt;

(c)  On 5 May 1999, as the 1st defendant did not defend High Court Action No 6099 of 1999, judgment in the sum of HK$650,000 plus interest was entered against him in favour of Chiu Yu Fong;

(d)  On 20 July 1999 Chiu Yu Fong obtained a Charging Order absolute against the 1^st defendant’s beneficial interest in the Property (“the Charging Order”).  Thereafter the 1^st defendant made 2 repayments totaling HK$100,000 to Chiu Yu Fong, leaving an outstanding amount of HK$858,120 which is inclusive of interest;

(e)  In 2003, the 1^st defendant alleged that he had repaid the debt in full to a debt collector appointed by Chiu Yu Fong, but which is denied by Chiu Yu Fong;

(f)  On 14 December 2009 when the defendants signed the Provisional SP Agreement to sell the Property to the plaintiff, the 1^st defendant took out a summons applying to discharge the said Charging Order;

(g)  That summons was heard by a Master on 24 May 2010 who allowed the application by the 1^st defendant and discharged the Charging Order, but on appeal by Chiu Yu Fong therefrom, the appeal was allowed and the order of the Master revoked.  Thus the said Charging Order registered against the Property remained valid and outstanding.

17. In April 2011 the plaintiff’s solicitors wrote to Messrs Dundons seeking a solution to discharge the Charging Order (on the basis that a clerk in the employ of Messrs Dundons had acted for the defendants in the sale of the Property to the plaintiff when he was employed by Messrs Jesse H Y Kwok & Co).  However, Messrs Dundons quite rightly refused to accept liability for the matter.

18. The plaintiff’s solicitors also wrote to Messrs Ng & Shum in the meantime to explore ways to discharge the Charging Order.

19. Finally, by 18 April 2011, in order not to cause delay to the real property development project, the plaintiff had no other alternative but to pay a sum of HK$1,330,378.08 to Chiu Yu Fong in order to discharge the Charging Order.

20. The plaintiff issued the Writ herein on 27 May 2011 claiming against the defendants for the sum of HK$1,330,378.08, the costs of Chiu Yu Fong in the amount of HK$10,000 and plaintiff’s costs of discharging the Charging Order in the amount of HK$57,270 totalling HK$1,397,648.08 with interest and costs.

21. The plaintiff took out an application for summary judgment under Order 14 by summons dated 5 July 2011.

22. The application for summary judgment was opposed by the defendant and heard by Master de Souza on 31 October 2011 whereupon the Master granted summary judgment to the plaintiff as claimed.

23. The defendants now appeal against that order of the Master granting summary judgment to the plaintiff.

Basis of the plaintiff’s claim

24. The plaintiff’s claim against the defendants is founded on breach of the terms of the Provisional SP Agreement including but not limited to clause 6 thereof, and also on breach of the terms of the Formal SP Agreement, including but not limited to clauses 3, 7 and 29 thereof.

25. It is the plaintiff’s case that the defendants knew that the Charging Order was valid and subsisting since on the date the Provisional SP Agreement was entered into the 1^st defendant took out a summons in High Court Action No 6099 of 1999 seeking to discharge the Charging Order.

26. Despite such knowledge on the part of the defendants, the defendants failed to inform the plaintiff that the Charging Order was valid and subsisting nor of the fact that the 1^st defendant was in the process of applying to have it discharged.

27. The defendants also failed to inform the plaintiff that the Charging Order could not be discharged before the completion date since the summons taken out by the 1^st defendant to discharge the Charging Order would not be heard by the court before 24 May 2010.

28. Therefore the defendants were knowingly in breach of the contractual terms owed by them to the plaintiff.

29. The payment of the sum of HK$1,330,378.08 and costs to Chiu Yu Fong as well as the plaintiff’s costs of discharging the Charging Order is fully documented and those amounts not disputed.

30. In the circumstances, the plaintiff says that it is wholly entitled to the summary judgment as granted by the Master.

Defence raised

31. Initially, one of the defence which the defendants sought to put up was that the 1^st defendant had already repaid the debt owed to Chiu Yu Fong in full through her debt-collector.  This point has now, quite rightly in my view, been abandoned by the defendants.

32. The defendants now also accept that they have not discharge the Charging Order when they assigned the Property to the plaintiff on 10 May 2010.

33. In summary, the defendants now seek to rely on 4 defences as follows:

(a)    The plaintiff has accepted the title of the Property and cannot now raise the issue concerning the Charging Order after completion;

(b)  The Provisional SP Agreement was superseded and annulled by the Formal SP Agreement therefore the plaintiff is precluded from lodging any claim against the defendants in reliance on any of the provisions of the Provisional SP Agreement;

(c)  The Formal SP Agreement has now merged in the Assignment and the plaintiff cannot seek to rely upon clause 29 of the Formal SP Agreement but which is not in the Assignment; in any event, clause 29 of the Formal SP Agreement does not apply to the Charging Order in question;

(d)  If the plaintiff has suffered any damages, that was the result of the plaintiff’s own making but was not caused by the defendants.

34. I shall deal in greater detail with the submissions by the defendant in relation to each of the defences raised.

Plaintiff has accepted title

35. It was submitted by the defendants that the plaintiff had full knowledge of the Charging Order by reason of the following matters:

(a)    On 27 January 2010 the defendants’ solicitors, Messrs Jesse Kwok & Co (“JKC”) sent the title deeds and documents relating to the Property to the plaintiff’s solicitors, Messrs Edward Ko & Co (“EKC”) for  the purpose of proving title to the Property;

(b)    On 2 February 2010, EKC raised requisitions to JKC in respect of certain missing documents including, inter alia, the Charging Order, in particular:-

-   Sealed copy of Charging Order absolute registered by Memorial No UB7841108;

-   Sealed copy of Charging Order absolute registered by Memorial No UB9274983; and

-   Sealed copy of Charging Order absolute registered by Memorial No 09072300380012.

(There was only one Charging Order, the registration of which was renewed a number of times)

(c)  On 22 February 2010 JKC provided to EKC all of the documents requested including the Charging Order and the three memorials above.

36. Therefore with full knowledge of the Charging Order, it was submitted by the defendants that the plaintiff unequivocally accepted the title of the Property which is to be implied from the following conduct of the plaintiff as purchaser:

(a)    There was no requisition raised by the plaintiff in respect of the Charging Order after the memorials above had been provided to EKC;

(b)    The completion for three other properties at Nos 311A and 311C of the Site was conditional upon the plaintiff being satisfied with the title to the Property.  The fact that the plaintiff had successfully acquired all the six properties for the redevelopment must mean that the plaintiff had accepted the title to the Property;

(c)  The plaintiff’s solicitors drafted the Formal SP Agreement but did not include the Charging Order under Part VII of the Schedule thereto which indicates that the plaintiff accepted the title to the Property despite the Charging Order;

(d)  The fact that the plaintiff consented to the release of the initial and further deposit to the defendants showed the plaintiff’s acceptance of the title to the Property since Part IV of the Schedule to the Formal SP Agreement provided that the deposits would only be released to the defendants upon the plaintiff’s solicitors approving and accepting the title of the Property;

(e)  There were no qualification inserted by EKC to the undertaking letter before proceeding to completion when such qualification could be made if the plaintiff wished to reserve its rights in relation to the Charging Order;

(f)  EKC tendered a draft assignment to JKC which was later revised and the plaintiff proceeded to completion by paying the defendants the full purchase price and executing the assignment without any reservation in respect of the Charging Order.

Provisional SP Agreement superseded by Formal SP Agreement

37. The short point made by the defendants in this respect is that clause 25 of the Formal SP Agreement stipulated that “This Agreement supersedes and annuls all representations and previous agreements between the parties whether implied or expressed verbal or written.”

38. Given such stipulation, it is submitted by the defendants that the plaintiff cannot now rely on any of the terms in the Provisional SP Agreement in its claim herein.

Merger of the Formal Agreement in the Assignment

39. It is submitted by the defendants that there is no provision in the Formal SP Agreement to the effect that clause 3 and clause 7 thereof were to survive completion.

40. Therefore once the Formal SP Agreement has merged with the Assignment, the plaintiff can no longer make use of or rely on clause 3 and clause 7 in the Formal SP Agreement which were not provided for by any of the covenants in the Assignment.

41. In so far as clause 29 of the Formal SP Agreement is concerned, which the defendants accept there was express provision that the clause was to survive completion, it was submitted by the defendants that clause 29 does not assist the plaintiff for the following reasons:-

(a)    Clause 29, say the defendants, was inserted to deal with rights interests and claims of third parties which were not readily discoverable by the plaintiff, and not in respect of claims by third parties which the plaintiff knew or ought to have known of, ie which were readily discoverable by the plaintiff;

(b)    The defendants were not in breach of clause 29 because the Charging Order was fully known to the plaintiff;

(c)  Although it is true that the defendants did not discharge the Charging Order before completion, any breach of clause 29 would result in the sale and purchase of the Property falling through – ie the return of the deposit and without completion taking place, but that was not the case since completion took place here;

(d)  There was no provision in clause 29 for the parties to go ahead to completion with knowledge of the Charging Order and then for the plaintiff to claim only for loss and damage.

42. Given all the above matters, it is submitted by the defendants that the Formal SP Agreement had merged entirely with the Assignment and the plaintiff cannot rely on any of the terms of the Formal SP Agreement in its claim now.

Decision

43. Clause 29 of the Formal SP Agreement is central to the dispute between the parties herein and is worded as follows:

“29. The Vendor [defendants] hereby declares and confirms that save and except the Mortgages (if any) mentioned in Part VII of the Schedule hereto no third party (whether related or otherwise) has any right or interest whatsoever whether legal or equitable in the said Premises. The Vendor further declares and confirms that the Vendor has the absolute rights and interest in the said Premises and the said Premises were purchased with the Vendor’s own monies or the mortgage loan with which the Vendor purchased the said Premises was repaid by the Vendor with its own monies. In the event of any valid third party claims to the said Premises whether legal or equitable, which the Vendor is unable to settle or discharge on or before completion the Vendor shall forthwith return the said deposit to the Purchaser [plaintiff] and without prejudice to the Purchaser’s right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor’s failure and or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution. This Clause shall survive completion of the sale and purchase herein.”

44. The first matter to note is that the defendants by their own admission contained in paragraph 55(b)(iii) of Counsel’s skeleton conceded that the defendants had failed to discharge the Charging Order before completion.

45. Secondly, it cannot be disputed that the defendants had failed to declare the Charging Order, which the defendants were under a duty to do so by reason of clause 29 above, since there is no mention of the Charging Order in Part VII of the Schedule to the Formal SP Agreement.

46. Accordingly, there can be no question but that the defendants were in breach of clause 29 of the Formal SP Agreement.

47. The fact that the plaintiff knew or ought to have known of the Charging Order from the requisition raised by the plaintiff’s solicitors and the provision by JKC to EKC of copies of the memorials by which the Charging Order was registered in the Land Registry, does not in any way absolve the defendants from their duty to declaring same under Part VII of the Schedule to the Formal SP Agreement.  The reason for that is the obligation put on the defendants by clause 29 of the Formal SP to settle or discharge before completion any valid third party claims.  Therefore although all the documents relating to the Charging Order had been provided by JKC to EKC, the plaintiff is entitled to take the view that the non-disclosure of the Charging Order under Part VII of the Schedule to the Formal SP Agreement means that the defendants have already discharged the Charging Order.

48. By the same token, I cannot accept the submission by the defendants that clause 29 only applied to outstanding third parties claim not known to the plaintiff.  Furthermore, there is nothing in the wording of clause 29 to so suggest.

49. As for the defendants’ submission that the plaintiff has accepted title to the Property, it has to be noted that there is a distinction in law between waiver by election and a waiver by estoppel.  In this respect, the law is succinctly stated in Chitty on Contracts (13^th ed) at para 22-047 as follows:

“Waiver of breach. One party may waive his right to terminate a contract consequent upon a repudiation of the contract by the other party. It is, however, important to distinguish between the case in which a party waives his right to treat the contract as repudiated but does not abandon his right to claim damages for the loss suffered as a result of the breach and the case where the innocent party waives not only his right to terminate performance of the contract but also his claim for damages for the breach. The former is an example of waiver by election, whereas the latter is more properly classified as a species of waiver by estoppel.”

50. In the present case, the plaintiff has undoubtedly elected to waive its right to treat the contract as repudiated by completing the sale and purchase and by execution of the Assignment.  There can be no question of repudiation by the plaintiff.

51. What the plaintiff is now claiming against the defendants is not repudiation or recission but only damages for the breach.

52. For a waiver by estoppel to take effect, there must be a clear and unequivocal representation by words or conduct not to enforce its legal right to claim damages and the defendants must have altered their position in reliance on such representation, or at least acted on it.

53. In the present case there is no such representation by the plaintiff nor have the defendants shown that they have altered their position by acting on such representation.

54. The fact that clause 29 makes no express mention of the right of the plaintiff, in the event of breach, to affirm the contract and then sue for loss and damage is neither here nor there since that is a common law right.

55. The point of merger taken by the defendants, in so far as it relates to clause 29 of the Formal SP Agreement is a non-starter since it is expressly provided in clause 29 that that clause shall survive completion of the sale and purchase.

56. For the reasons given above, I cannot accept the submission that the loss and damage suffered by the plaintiff was not caused by the defendants but of the plaintiff’s own doing.

57. Accordingly, I find no merits in any of the defences raised and can only come to the conclusion that the Master was wholly correct to have given summary judgment in favour of the plaintiff as he did.

58. This appeal is therefore dismissed with costs to the plaintiff to be taxed if not agreed.

59. For the avoidance of doubt, the entirety of the order made by Master de Souza is to stand including the costs order below.