CHAO CHIN KEE AND ANOTHER v. YOUNGWAYS SUCCESS (INT'L) CO. LTD.

1998, H.C.A. No. 877

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 877 OF 1998

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REASONS FOR JUDGMENT

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1. Introduction

2. The Plaintiffs were the purchasers and the Defendant was the vendor of a house in a housing project known as "Palm Springs" in Yuen Long ("the suit property"). The Plaintiffs claimed in this action they were entitled to rescind the sale and purchase agreement dated 30 October, 1997 ("the Agreement") pursuant to Clause 12(a) thereof. Further, they claimed (at paragraph 9 of the Statement of Claim) that the illegal structures affected the Defendant's title to the suit property. Based on these claims, they asked for the rescission of the Agreement and for consequential relief. Under the Agreement, the purchase price was HK$7.46 million and completion was to be on 15 January, 1998.

3. The Defendant denied the Plaintiffs' claims and counterclaimed that the Agreement had been repudiated by the Plaintiffs and for damages.

4. At the end of the trial on 20 May, 1999, I dismissed the Plaintiffs' claims and (a) granted a declaration that by reason of the Plaintiffs' repudiation of the Agreement, the Defendant is relieved of all liability for the further performance of its obligations thereunder, (b) entered judgment in the Defendant's favour in the sum of HK$2.66 million with interest and costs of the action. The following are the reasons for the Judgment.

5. Clause 12(a) of the Agreement

6. Clause 12(a) of the Agreement reads:-

"The Vendor hereby warrants and declares that the Vendor has not received and is not aware of there being any notice from any Government or other competent authority requiring the Vendor to demolish or reinstate any part of the Property. If it should be discovered that such notice existed prior to the date hereof or if any such notice shall be served before the Completion Date, the costs for such demolition or re-instatement shall be borne by the Vendor and the Purchaser shall have the option to rescind this Agreement whereupon the deposit shall be returned to the Purchaser by the Vendor in full but without any compensation interest or costs and neither party shall have any claim against the other hereon ... ".

7. The "Requisition"

8. The letter from the Plaintiffs' solicitor relevant to this action was dated 13 December, 1997. It said inter alia:-

"We have received a letter dated 20 November 1997 from Kai Shing Management Services Limited relating to the above property and enclose herewith a copy of the letter.

The letter inter alia indicated that unauthorized structure was erected on the flat roof and in front of the main entrance. It appears that your client is well aware of the notice served by the Manager before execution of the Agreement for Sale and Purchase dated 30 October, 1997.

Pursuant to clause 12(a) of the said Agreement, your client is obliged to bear the costs for such demolition or reinstatement of any part of the Property. Our client has the option to rescind the said Agreement. ... ".

9. A few days later, on 17 December, 1997, the Plaintiffs' solicitors wrote again and said:-

"We are instructed that our client hereby exercises the option to rescind the Agreement for Sale and Purchase dated 30 November, 1997 [sic] in accordance with clause 12(a) thereof.

We shall be glad if you could return to us the sum of HK$746,000 being refund of the deposit. ... ".

10. From 17 December, 1997 to 24 December, 1997, the Defendant's solicitors wrote and informed the Plaintiffs that they were taking instructions from the Defendant.

11. On 30 December, 1997, the Plaintiffs' solicitors wrote again and repeated in effect their demand for the return of the deposit.

12. The letter from the Plaintiffs' solicitors dated 13 December, 1997 does not appear to me to be proper requisitions on title. It rather stated that the Plaintiffs regarded the Defendant to be in breach of its obligations under Clause 12(a) and that the Plaintiff were entitled to the alternative relief thereunder. The fact that the letters dated 17 and 30 December, 1997 purported to exercise the option to rescind reinforces that impression. I find that these letters do not contain any proper or valid requisitions on title.

13. Liability

(1) in relation to Clause 12(a)

14. Paragraph 10 of the Statement of Claim averred that: "Upon failure of the Defendant to reply the said Requisitions promptly or at all, by a letter dated 17 December, 1997 from [the Plaintiffs' solicitors] the Plaintiffs exercised their option to rescind [the Agreement] and demanded for return of deposit paid ... ".

15. Despite this averment, no relief was sought by the Plaintiffs for a declaration that the Defendant had not sufficiently answered the Plaintiffs' requisitions on title. In any event, I have earlier concluded that the said letters from the Plaintiffs' solicitors did not amount to proper or valid requisitions on title. For this reason, I would not have granted such relief even if it had been prayed for.

16. There is a further ground why I concluded that the Plaintiffs' claim based on Clause 12(a) ought to be dismissed. In a case decided some 6-1/2 years before the said letters from the Plaintiffs' solicitors, that is, Cheung Kai-wei, Sandra v. Fuk Ka-pak [1990] 2 H.K.L.R. 480, the Court has decided that a clause similar to Clause 12(a) of the Agreement did not cover a notice served by a manager appointed under a Deed of Mutual Covenant. Mr. Justice Clough said in his Judgment:-

"Used in conjunction with the word 'Government', I repeat the expression 'Government or other competent authority', it seems to me to be clear that what is intended to be referred to by the expression 'other competent authority'―I emphasise the word 'other'―is some other body or person who has some statutory power, not a mere contractual right or power, to serve some form of prescribed notice upon the owner or occupier of infringing premises to ensure the demolition or reinstatement of structures which had been either erected or demolished in breach of some statutory obligation or duty. If it were intended that 'competent authority' should include any person or authority who had the contractual right or power to serve any sort of demand, whether it be described as a notice or a letter, then it seems to me it would be quite inappropriate to use the words 'competent authority', because the words 'any other person' or 'any other competent person' would suffice and there would be no need to resort to the expression 'authority'" (at p. 487 thereof).

17. Mr. Tsui for the Plaintiffs accepted (same as in the Cheung Kai-wei case) the notice in the present case was served by a manager appointed under the Deed of Mutual Covenant. He therefore accepted that this decision was directly against this part of the Plaintiffs' case. However, he invited me not to follow this decision because he argued it was wrong. His submissions were in essence it is common that managers so appointed would possess a power to impose a charge against an offending unit. Government or other authorities are also usually empowered to do so under statutes. In this respect, the power of a manager is similar to that of the authorities. There is therefore good ground for including a manager as "a competent authority" in Clause 12(a).

18. I do not agree. I consider the reasoning adopted by Mr. Justice Clough in the Cheung Kai-wei case to be correct and accords with settled principles of construction: see for example Lewison: The Interpretation of Contracts (1997) 2nd ed., especially pp. 111-13. I agree with it and the conclusion reached in that case.

(2) in relation to Para. 9 of the Statement of Claim

19. As stated earlier, paragraph 9 of the Statement of Claim averred that the illegal structures in question affected the Defendant's title to the suit property. In his written skeleton submissions, Mr. Tsui relied on Clause 16 of the Agreement which obliged the Defendant to show and give a good title to the suit property. Among the cases referred to in his List of Authorities were cases like Giant River Ltd. v. Asie Marketing Ltd. [1990] 1 H.K.L.R. 297, Regent Summit (Hong Kong) Ltd. v. Smart Business (Asia) Ltd. [1998] 2 H.K.C. 718 and Homyip Investment Ltd. v. Chu Kang Ming Trade Development Co. Ltd. [1995] 2 H.K.C. 458. These were all cases dealing with defects of title arising from structures erected without the approval of the Building Authority, or in breach of conditions of a Government Grant. No such point was raised by the Plaintiffs' solicitors in their correspondence with the Defendant's solicitors.

20. I do not consider it was open for the Plaintiffs to raise such a point in this action when they had not done so within a reasonable time before completion or the time provided by the Agreement for raising requisitions on title. For this reason, I find that both the testimony of the architect called by the Plaintiffs and the submissions made by Mr. Tsui regarding this aspect are not relevant matters which warrant further consideration. The architect was allowed to testify only because Mr. Soo for the Defendant did not object to the Plaintiffs calling this witness.

21. Quantum/Relief

22. Having found for the Defendant in relation to liability, I now deal with the question of relief because objections were raised by Mr. Tsui in relation to the Defendant's claim for damages.

23. The Defendant's director, Madam Tse Siu Wan testified and adopted her witness statement as her testimony. At paragraph 24 of her statement, she said the Defendant attempted but was still unable to resell the suit property due to the Agreement and a copy of Writ herein having been registered by the Plaintiffs with the Land Registry. Mr. Tsui did not challenge this part of her testimony in his cross examination. I was satisfied and found that there was a genuine intention on the Defendant's part to resell the suit property but such was prevented by the registration of lis pendens by the Plaintiffs.

24. Mr. Tsui argued that the Defendant could not claim damages in the absence of an actual resale. This part of his argument was based on Clause 23 of the Agreement which reads:-

"... Upon determination of this Agreement the Vendor may resell the Property ... Without prejudice to the Vendor's right to recover the actual loss which may resulted [sic] from the Purchaser's breach of this Agreement, on such resale any deficiency in price shall be made good and all expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages. ... " (italics supplied).

25. There are two principles against this argument. First, a contracting party cannot rely on his own breach; thus, "It has been said that as a matter of construction ... it will be presumed that it was not the intention of the parties that either should be entitled to rely on his own breach of duty to avoid the contract ... or to obtain a benefit under it.": Chitty on Contracts (1994) 27th ed., para. 12-070. Secondly, a term is implied by law that a contracting party will not prevent the performance of the contract. In Chitty, it was said "... 'If a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances under which alone the arrangement can become operative'" (para. 13-010 citing Stirling v. Maitland (1864) 5 B. & S. 840, 852).

26. Relying on the first of these two principles, I do not consider that Clause 23 of the Agreement should be construed as barring the Defendant's claim for damages when the Plaintiffs had impeded the resale by registering the lis pendens. Alternatively, even if Clause 23 could be so construed, relying on the second principle, the Plaintiffs could not rely on this clause when they had breached their implied engagement not to prevent the resale.

27. Mr. Tsui argued that the Defendant had not mitigated its loss by asking for the registration of the lis pendens to be vacated. He said the Plaintiffs might agree to do so if the amount representing the deposit and the stamp duty claimed by the Plaintiffs was paid into Court. These two sums amounted to HK$951,150. The Defendant's duty under the law was only to take reasonable steps to mitigate its loss; the duty was not absolute. Taking into account the amount which the Defendant might be asked to pay into Court and the amount which the Defendant may be able to claim from the Plaintiffs in this action, I do not find that the Defendant has failed its duty of mitigation in not having asked for the registration to be vacated upon the conditions proposed by Mr. Tsui.

28. Mr. Tsui argued (alternatively) the Defendant should have offered to sell the suit property to the Plaintiffs at the prevailing market price. I am surprised by this argument. The Plaintiff had refused to complete the transaction by relying on Clause 12(a) of the Agreement. Further, they commenced this action alleging the suit property had a defect in title. In these circumstances, I consider it reasonable for the Defendant not to have offered to sell to the Plaintiffs in the absence of some indication that they were interested in buying the suit property. Further, I doubt if the Plaintiffs would purchase the suit property well knowing that the Defendant would counterclaim them for the difference between the price of that sale and the price under the Agreement. I also reject this argument of Mr. Tsui.

29. Mr. Tsui did not challenge the expertise of the valuer called by the Defence. I am satisfied that the witness possessed the requisite expertise in valuation. Despite Mr. Tsui's cross examination, I am satisfied with the witness' valuation that the suit property was worth HK$4.8 million as at 15 April, 1998.

30. I consider that the calculation of loss set out in p. 10 of the Defendant's written skeleton submissions (save as to legal fees) is appropriate:-

Contract Price	$7,460,000
Less Price as per valuation	$4,800,000
Sub-total		$2,660,000
Less deposit paid	$746,000
Total		$1,914,000

I have taken into account the observations in Emmet on Title 19th ed., para. 7.016 to 7.018 when assessing the quantum of damages, including the cases cited therein as to whether damages are to be assessed on the date of breach or date of judgment.

31. I am not satisfied from the documents at pp. 1-4 of the Defendant's bundle of documents that the legal fees were properly recoverable from the Plaintiffs as damages and therefore disallow these fees.

32. The monetary judgment in the Defendant's favour should therefore be HK$1,914,000 instead of HK$2.66 million which was pronounced on 20 May, 1999 (which did not take into account the deposit forfeited by the Defendant). The Court retains a general power to reconsider and amend Judgments or Orders before they are formally drawn up and perfected: see The Supreme Court Practice 1999, para. 20/11/9 (principle (6)) and 42/1/27.

33. Costs

34. There was no reason why costs should not follow the event and costs of the action were therefore to be paid by the Plaintiffs to the Defendant to be taxed if not agreed.