CHAN FUNG LAN v. LAI WAI CHUEN

1996, No.MP 4210

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H E A D N O T E

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Donee of a gift entered into an agreement for the sale of the gifted property within three years of the gift. The donors are still alive. The purchaser challenged the title of the property.

Held -

1. Title to the property is defective. The property is liable to be charged for estate duty.

2. The authenticated Chinese text of the proviso to s.18 of the Estate Duty Ordinance is incorrect. The inclusion of the words "押記" (charge) does not appear in the English text. Notice in the proviso is construed as notice of facts giving rise to the charge and not notice of a subsisting charge or facts giving rise to a subsisting charge.

3. If the authenticated Chinese text of a legislation is incorrect, then it should not be acted upon.

1996, No.MP 4210

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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Background

1. On 12th May 1995, Mr Lai Yuen and his wife Chan Siu ("the Donors") assigned the property at 13 Un Chau Street, 1st Floor, Front Portion (the Property") to their son Lai Wai Chuen, the Defendant vendor. The assignment was by way of gift. On 18th October 1996, the Defendant entered into a Provisional Agreement ("the Provisional Agreement") with the Plaintiff purchaser for the sale of the Property. Requisition as to title of the Property was raised by the Plaintiff. The requisition concerns the potential liability of the Property being subject to a charge of estate duty that may be imposed by the Commissioner for Inland Revenue under s.18 of the Estate Duty Ordinance (the Ordinance").

The Estate Duty Ordinance

2. Section 5 of the Ordinance provides that estate duty shall be levied upon the principal value of all properties passing on the death of a deceased person. Under s.6(1)(c), property passing on the death of a deceased shall be deemed to include those disposed by the deceased by way of gift within three years of his death. The charge of estate duty on the property of the deceased is set out in s.18 of the Ordinance -

"18. Charge of estate duty on property

(1) Subject to subsection (2)-

(a) a rateable part of the estate duty on an estate, in proportion to the value of any property which does not pass to the executor as such, shall be a first charge on the property in respect of which estate duty is leviable;

(b) .......

Provided that the property shall not be chargeable as against a bona fide purchaser thereof for valuable consideration without notice.

(2) Notice of any charge on any leasehold property constituted by subsection (1) may be given by the Commissioner registering in the Land Registry against the property affected thereby a Memorial signed by him specifying the subsection under which the charge is constituted, the name, description, and date of death of the deceased in respect of whose estate the claim to estate duty arises, and particulars of the property charged.

(3) A notice in writing of any charge under subsection (1) or (2) may be entered in the Land Registry as an instrument affecting land."

Lee Siu Man and other cases

3. The Donors are still alive. If unfortunately they died within three years of the gift, then depending on the value of their estate at the time of death, the Property may be subject to a charge of the estate duty.

4. In Lee Siu Man v. Chu Chi Wing [1992] 1 HKC 266, Godfrey J. (as he then was) construed the proviso to s.18(1). At page 269 he held that -

" If the Commissioner has not registered the charge (being a subsisting charge capable of registration) before the completion of the purchase, it may be that in that case the purchaser would take free from the charge, even though he may have had actual notice of the facts giving rise to the charge. But while the charge remains 'latent' and incapable of registration, I am of the opinion that a purchaser who takes with notice of the facts cannot rely on the proviso to escape the charge. Notice of the facts gives him notice of the contingent liability to the charge. In my judgment, the reference to 'notice' is not to be read as limited to notice of facts giving rise to a subsisting charge.

In the result, I conclude that the purchaser here was entitled to object to the title. It disclosed a gift made within the period of three years last past. Unless proper provision were to be made for getting over the difficulty to which that gives rise, the title was one which the purchaser was entitled to reject."

While the learned Judge held that the purchaser was entitled to reject title, he did not declare the title to be defective. Instead he declared that the requisitions have not been sufficiently answered.

5. In Ample Treasure Ltd. v. Eight Gain Investment Ltd. [1992-93] CPR 444, the property was assigned by deed of gift to the donee in 1981. The donee assigned the property to the vendor in 1990. The purchaser raised requisition and required evidence that the property was not subject to any charge or estate duty. Deputy Judge Patrick Chan (as he then was) referred to Lee Siu Man and accepted the construction placed by Godfrey J. on the proviso in respect of a purchaser who buys from a donee within three years of the gift when the donor is still alive.

6. There are two other cases in this area, namely Chan Chi Hung & Another v. Tse Ying Piu (MP No.3630 of 1994) and Shum Lap Chun & Another v. Au Mee Lag & Another (MP No.2845 of 1996) both cases are not of relevant application to the present situation. The intended sale there were to take place more than three years after the gift and the donors of the properties were still alive at the time of the sale.

The Vendor's argument

7. Mr Ambrose Ho, Counsel for the Defendant, in a persuasive submission, argued that the construction placed by Godfrey J. is wrong. He submitted that the "notice" in the proviso, which deprives a bona fide purchaser of the benefit of the protection, is notice of a subsisting charge imposed under s.18(1) or facts giving rise to such a subsisting charge (e.g. notice by the purchaser of the fact that the donor has died within three years of the gift). The argument is that since s.18(1)(a) refers to the charge and s.18(2) refers to the notice of the charge by registration of a memorial, the notice referred to in the proviso must be in respect of the subsisting charge.

The authenticated Chinese text

8. Mr Ho further referred to the authenticated Chinese text of the Ordinance in which the proviso expressly refers to a charge (押記). I set out in full the relevant parts of s.18 of the authenticated text -

"18. 就遺產稅對財產施加押記

(1) 除第(2)款另有規定外-

(a) 凡以任何未就遺囑執行人的身分而轉移給他的財產價值﹐在一份遺產的遺產稅中﹐按比例計算出來的部分﹐須屬施加於該須徵收遺產稅的財產的第一押記﹔

(b) 凡以死者單獨持有批租土地財產的價值﹐在一份遺產的遺產稅中﹐按比例計算出來的部分﹐而根據第12(8) 條是分期繳付的﹐須屬施加於該財產的第一押記﹕

但如財產經真誠購買人以有值代價及在不知該財產有押記的情況下購入﹐則不得對該財產施加押記。

(2) 任何批租土地財產﹐如有任何根據第(1)款而構成的押記﹐署長可就該押記發出通知﹐方法是在土地註冊處就該受影響的財產登記一份經他簽署的提要﹐指明根據何款規定構成該押記﹑就其遺產被申索遺產稅的有關死者姓名﹑身分及去世日期﹐及被施加押記財產的詳情。

(3) 根據第(1)或(2)款就任何押記發出的書面通知﹐可在土地註冊處記錄為對土地有影響的文書。"

The Official Languages (Authenticated Chinese Text) (Estate Duty Ordinance) Order was made on 15th November 1994 declaring the Chinese language text to be the authenticated text as at 16th December1994.

Interpretation and General Clauses Ordinance

9. Mr Ho further relied on s.10B of the Interpretation and General Clauses Ordinance ("the Interpretation Ordinance") which provides that the Chinese text is equally authentic as the English text -

"10B. Construction of Ordinances in both official languages

(1) The English language text and the Chinese language text of an Ordinance shall be equally authentic, and the Ordinance shall be construed accordingly.

(2) The provisions of an Ordinance are presumed to have the same meaning in each authentic text.

(3) Where a comparison of the authentic texts of an Ordinance discloses a difference of meaning which the rules of statutory interpretation ordinarily applicable do not resolve, the meaning which best reconciles the texts, having regard to the object and purposes of the Ordinance, shall be adopted."

The Purchaser's submission

10. Mr Mui, Counsel for the Plaintiff, submitted that the Lee Siu Man approach is correct. He submitted that banks in Hong Kong would not finance the purchase of a gifted property. With respect to Mr Mui, if this latter matter is relied upon, then evidence should be filed. Furthermore, banks may refuse to lend money for various reasons; the fact that banks in general would not lend money on gifted properties does not necessarily mean that the title is defective. One must construe as a matter of law whether such titles are defective.

My construction

11. Notwithstanding Mr Ho's submission, I accept the construction placed by Godfrey J. on the proviso. It is not possible to construe the notice in the proviso as referring to notice of a subsisting charge. If the donor is still alive at the time of the sale, there will be no charge registered in the property. Hence, there is no question of notice of a subsisting charge. Yet the existence of the gift could give rise to estate duty implications if the donor dies within three years of the gift.

12. The problem in this area stems from the nature of a gifted property with its potential liability for estate duty and a charge being imposed on it. Even if the property is not disposed of by the donee, the problem will still arise in the hands of the donee. The Defendant agreed to sell the Property free from incumbrance. The charge of estate duty is an incumbrance : Re Nesfield; Barber v. Cooper (1914) 110 LT 970 (this case was not cited in argument but was referred to in Green's Death Duty which was cited). In that case the testator devised a freehold messuage and premises "free of any incumbrances". Joyce J. held that :

"Unless the testator expressly directed that succession duty and estate duty should be paid out of the estate, the devisee would not take the property otherwise than subject to these duties. I think that the testator, by using the words 'free from incumbrances,' intended to relieve the property from any charge whatsoever and to throw the payment of these duties upon the general residuary estate."

In situation such as this, the Defendant cannot deliver the Property free from incumbrance to the Plaintiff in view of the latent charge which might become a subsisting charge.

13. In England, the Land Charges Act 1925 and Law of Property Act 1925 contain provisions which protect a purchaser from an unregistered charge (see Green page 599). In Manning v. Turner [1957] 1 WLR 91 (referred to by Godfrey J. in Lee Siu Man), it was assumed without argument that a purchaser with notice of the facts that might give rise to the charge is not able to rely on such provision. In that case, which concerns sale of a property within five years of the gift when the donor was still alive (this being the limit under the English legislation), Sir Leonard Stone V.C. held that the risk of the property being subject to charge with estate duty cannot be said to be so remote or shadowy as to be one to which no serious attention need to be paid. He held that the title will not be forced upon the purchaser unless the defect was first removed by an indemnity policy issued by a insurance company insuring against the risk involved.

14. Although there was no argument in Manning v. Turner, the principle that such a purchaser is not protected is correct. As Godfrey J. said, notice of the facts gives him notice of the contingent liability to the charge. The starting point is that under the Ordinance, estate duty charge may arise on the donor's death within three years of the gift. To construe the notice in the proviso as confining to notice of facts giving rise to a subsisting charge, such as the death of the donor, is unduly restrictive in the light of the statutory provision.

Conflict of the two texts

15. As the notice is notice of the facts that a charge may arise on a future death of the donor within the three year period, the inclusion of the words "押記" or "charge" in the authenticated text is incorrect. Firstly, the word "charge" simply does not appear in the English text. Secondly, the reference to notice is not notice of a subsisting charge but notice of facts giving rise to a charge.

16. It is not possible to reconcile the two texts. The solution does not lie in giving effect to a text which favours one party as in the recent criminal case of R. v. Tam Yuk Ha (Mag. App. No. 9330/1996). This is not a workable approach because ambiguities of the two texts do not arise solely in criminal cases but in civil matters as well where there are two or more litigants. When the Court comes to the view that the authenticated Chinese text contains inaccuracies then it should not give effect to that text but should instead rely on the original legislation. This approach is justified because under s.4B of the Official Languages Ordinance where the Governor-in-Council has declared a text to be an authenticated text of an ordinance and it appears to him that there is any manifest error, omission or inaccuracy in that text, he may by order in the gazette correct that error and any such correction shall be deemed to have been incorporated in the text at the time when it was declared to be the authenticated text. One must bear in mind that the authenticated Chinese text started life simply as a translation of the original legislation and if there are errors in the translation, which are bound to arise in such a mammoth undertaking, such errors should not be given effect simply because under s.10B of the Interpretation Ordinance the two texts are said to be equally authentic.

Land Registration Ordinance

17. Ample Treasure is a case where the property was sold more than three years after the gift. In his judgment, the learned Judge suggested where a donor died within three years after the gift, even if the purchaser cannot avail himself of the protection under the proviso, he can still rely on s.3(2) of the Land Registration Ordinance if he can register his assignment in time or before the Commissioner register the statutory charge. His approach was not accepted by commentators. For a discussion on this topic, see Hong Kong Taxation Vol 2 I[669] and I[965] by Willoughby and Halkyard. As the parties had not addressed me fully on the effect of the Land Registration Ordinance, in particular the issues raised by the commentators which were apparently not argued in Ample Treasure, I would refrain from expressing any view on that case. In any event, the present case is quite different in that the donors are still alive.

Offer of indemnity or security

18. The Defendant offered to set aside 18% of the purchase price which is to be retained by his solicitors as stakeholder for the purpose of satisfying the estate duty. The money will only be released to the Defendant upon the expiration of the three years period, counting from the date of the gift.

19. One of the Donors, namely the father of the Defendant assigned two properties to the Defendant by way of gift at the same time. One of which was the Property. The total value of these two properties was assessed by Hong Kong Government to be HK$2.2 million, the father's share as a co-owner was valued at HK$1.1 million.

20. The other Donor also assigned three properties to the Defendant, namely the two properties I have referred to earlier and also a third property which was held in the joint name of herself and the Defendant. The third property was valued at $3.2 million, hence the total value of these three properties was $5.4 million and her half share in the property was valued $2.7 million. She also has cash at $420,000 and $160,000 worth of stocks and shares.

21. The current threshold value of property subject to estate duty is $6.5 million and the rate thereof is at 6%. Mr Ho argued that the 18% offered was more than sufficient to satisfy any contingent liability. The offer was not accepted.

22. On the assumption that upon the death of the Donors, their estate will attract estate duty, I think, as far as the amount is concerned, the 18% is sufficient to cover any contingent liability for estate duty because it seems under s.18(1) of the Ordinance, the charge is not in respect of all the estate duty leviable but rather a ratable part of the estate duty in proportion to the value of the property which does not pass to the executor as such, i.e. the gifted property.

The Authorities

23. Manning v. Turner is a case where the provision of an indemnity insurance was raised.

24. In Lee Siu Man Godfrey J. also referred to covering the risk by insurance or by retention from the purchase money pending the expiration of the period of three years.

25. In Re Heaysman's and Tweedy's Contract [1893] 69 LT 89 Lindley L.J. at p.91 held that -

"The vendor offers an indemnity. The purchaser is not bound to accept it; but it is material on the question of costs, as the vendor has not been wholly free from blame. The vendor did not abstract the lease or the judgment. He should have done so. But having offered an indemnity and the blot being one which we regard as no blot at all, he ought to be allowed the costs both here and below, and he ought to give the indemnity."

In Emmet on Title, 19th Edn. the learned authors stated that the offer of an indemnity by the vendor commend itself as the best solution in practice. Further discussion was made in Contract and Conveyance 4th Edn. by Farrand. The author suggested that Manning v. Turner should be confined to its own facts, in particular that the defect in question was only a possible money liability (a charge to estate duty) not affecting possession of the property, and also that it was the purchaser initially who requested the indemnity. Otherwise the general rule must be that supported by the Court of Appeal in the earlier case (i.e. Re Heaysman's Contract), namely that the purchaser is not bound to accept an indemnity as curing a defective title.

Title defective and requisition not answered

26. In Lee Siu Man, the learned Judge only declared that the requisition was not answered, he refused to declare that the title was defective. I do not think that there is any halfway measure in this situation. Certainly where the sale by the donee is within the three year period of the gift when the property is subject to a potential charge for estate duty, then the title of the property is defective. The view expressed by Farrand that the defect is only a possible money liability is not helpful at all because under the terms of the Provisional Agreement the Defendant is required to deliver the Property to be sold free from incumbrance. The blot on title is not purely theoretical. It is practical and real if the donors died during the first three year of the gift.

27. Quite apart from the fact that a purchaser is not required to accept an indemnity, the practical difficulties of accepting indemnity or security is impossible to surmount in Hong Kong with the high speed and high volume transactions. Further in view of the current uncertainty regarding sale of properties after the three year period, there appears to be no protection to the purchaser if the security is returned after the three year period. If the purchaser wishes to sell the property again within the three year period, he would likewise have to put up similar security. Hence I come to the view that the furnishing of security is not applicable in Hong Kong and the Defendant has not proved title to the Property and has not answer the requisition.

Suggestions

28. I would suggest that a formal alteration of the authenticated Chinese text should be made pursuant to the Official Languages Ordinance.

29. Section 38 of the Finance Act 1957 of the United Kingdom has shifted the charge from the property itself to the proceeds of sale of the property (see Green's Death Duties 7th Edn. Pages 597-599). I urge the Commissioner of Inland Revenue to consider adopting such an approach in Hong Kong as well so that dispute in this area can be resolved once and for all.

Rescission

30. This, however, is not the end of the matter because Mr Ho argued that even if the Defendant has failed to show a good title and has thereby committed a repudiatory breach of the Provisional Agreement, the Plaintiff did not accept the breach and bring the contract to an end. On the contrary, the Defendant was entitled to terminate the Provisional Agreement on the ground of repudiatory breach on the part of the Plaintiff by (1) failing to pay the further deposit; (2) to enter into the formal sale and purchase agreement by insisting on terms which are wholly extraneous to the Provisional Agreement and refusing to accept terms which have already been agreed upon in the Provisional Agreement.

The correspondence

31. The parties corresponded on the issue of the gifted property. On 5th November 1996. The Plaintiff's solicitors ("Yaddy Cheung") informed the Defendant's solicitors ("Hui & Lam") that the Plaintiff has decided to rescind the sale and purchase of the Property and asked for return of the $117,300 deposit within the next three days.

32. Thereafter, Hui & Lam on 11th November 1996 wrote two letters to Yaddy Cheung dealing firstly with the amendments to the proposed draft agreement and secondly, referring to the setting aside of the 18% of the sales price as security.

33. On 15th November 1996 Yaddy Cheung wrote two further letters, one insisting on the amendments to the draft agreement, the second rejecting the setting aside of the 18% purchase price.

34. On 22nd November 1996, Yaddy Cheung wrote again stating that the title of the Property was defective and gave notice of the Plaintiff's intention to rescind from the agreement. Yaddy Cheung demanded the return of the deposit within three days failing which, the letter stated that "We have standing instruction to institute legal proceedings for the recovery thereof without further notice."

35. On 25th November 1996 Hui & Lam returned $17,300 which was the further deposit payable by the Plaintiff under the Provisional Agreement.

36. By another letter of 25th November 1996 Hui & Lam wrote stating that the Plaintiff's purported rescission of the agreement was wrongful; the Plaintiff was not entitled to insist on extraneous terms nor to refuse the already agreed terms under the Provisional Agreement. The question of estate duty was again raised.

37. On 26th November Yaddy Cheung wrote stating that they did not agree to the views of Hui & Lam's two letters. The letter stated that -

"As the completion of the purchase of the above property is scheduled on 29th November 1996 and your client would not be in a position to show good title free from incumbrances, kindly let us have your reply within 2 days from the date hereof to rescind the sale and purchase of the said property and return to our client the HK$117,300.00 deposit paid, failing which our client shall have no alternative but to take out the Vendor and Purchaser Summons to seek Court's declaration. In the maintime, kindly confirm with us whether you have instructions to accept services thereof. In the maintime, we return you herewith the cashiers' order in the sum of $17,300.00 being further deposit payable to your client under the provisional agreement."

38. Yaddy Cheung had previously insisted the further deposit of $17,300 would be held by Hui & Lam as a stakeholder. In a letter of 27th November 1996, Hui & Lam raised the point that Yaddy Cheung's letter of 26th November did not refer to stakeholding of $17,300 which they i.e. Hui & Lam took it to mean that the money could be released to the Defendant unless they were advised to the contrary by 12 noon the following day. Hui & Lam also stated that -

" We trust we have answered all your requisitions satisfactorily. After you have the opportunity to peruse the enclosed documents and re-consider the case, we hope you will share our views and advise your client to complete the transaction on or before 29th November 1996. If your client fails to complete the purchase by the said date, all the deposits paid by your client will be forfeited as provided under the provisional agreement."

39. On 28th November 1996 Yaddy Cheung wrote -

"We reiterate that the payment of HK$17,300.00 being further deposit was made pursuant to the preliminary agreement for sale and purchase dated 18th October 1996. We maintain our view that the said further deposit could only be released to your client, being the vendor, upon signing of a formal agreement for sale and purchase by our respective clients unless both parties agree otherwise.

All our client's right are hereby expressly reserved."

40. By a letter of 29th November Yaddy Cheung stated that they maintained their view on the requisition concerning the gift and estate duty and that the 18% of the purchase price as security would not be sufficient to remove the possibility of latent charge. The letter concluded by stating that -

"Due to the reasons aforesaid, we maintain our view that our requisition has not been satisfactorily answered and your client would not be in a position to show good title free from incumbrances (i.e. a latent charge). We hope that you will share our view and confirm that your client agree to our rescission of the sale and purchase of the captioned property and return the sum of HK$117,300.00 as deposit paid.

If we do not receive your favourable reply by 5:00 p.m. of even day, our client shall have no alternative but to take out the Vendor and Purchase Summons to seek appropriate Court's declarations.

All our client's right are hereby expressly reserved."

41. On the same day, Hui & Lam wrote stating that the Plaintiff was required to complete the sale and purchase that day.

42. On 30th November 1996 Hui & Lam wrote -

" Your client is in breach of the provisional agreement in failing to:-

1. pay the further deposit of $17,300.00;

2. sign the formal sale and purchase agreement; and

3. pay the balance of the purchase price and complete the transaction on 29th November 1996.

In the premises, our client forfeits your client's deposit of $100,000.00 pursuant to clause 9 of the provisional agreement. We return to you herewith the cashier's order of $17,300.00 which you have requested us to hold the same as the stakeholder."

Inconsistency of the Plaintiff's case

43. Notwithstanding the notice of rescission given by the Plaintiff in the letters dated 5th and 22nd November 1996, the payment on the 26th November 1996 of the sum of $17,300 being further deposit under the Provisional Agreement is clearly inconsistent with any determination of the Provisional Agreement. Mr Ho submitted that even giving the Yaddy Cheung letter of 29th November a generous reading, it cannot be interpreted as an acceptance of the Defendant's breach.

Extraneous terms

44. Mr Ho had demonstrated that the Plaintiff had insisted on extraneous terms such as the stakeholding of the $17,300 and the insertion of an additional clause 28(a) "... and the property was purchased with the Vendor's own monies/and the mortgage loan was repaid by the Vendor's own monies" when the facts clearly showed that the Plaintiff acquired the Property by way of gift.

45. Mr Mui argued that the insistence by the Plaintiff that the Defendant has to hold the $17,300 as stakeholder until the formal agreement was signed was nothing new. The requirement was made in accordance with clause 2.2 of the Provisional Agreement, the obligations in respect of the signing of the formal agreement and the payment of the further deposit were simultaneous and complementary in nature. The two have to be performed together.

46. I must say that Mr Mui's construction of clause 2.2 is wrong. Clause 2, the translation of which is agreed by the parties, is as follows -

"On or before 29th October 1996 a formal agreement for sale and purchase be signed and a deposit in the sum of HK$17,300 shall be paid."

47. While these two obligations are to be performed at the same time, the payment of a deposit is not conditional upon the signing of the formal agreement. The further deposit has to be paid irrespective of whether any formal agreement was signed. The Plaintiff seemed to have overlooked the point that the Provisional Agreement is a valid and binding agreement by itself. If a formal agreement is not signed because, for example, where a party insists on a term which is in accordance with the provisional agreement but where the other party rejects the inclusion of that term, then the original party is able to fall back upon the provisional agreement and enforce it as an open contract : Link Brain v. Fujian Finance Co. Ltd. [1990] HKLR 353 (CA). The intended subsequent agreement is to make formal and expressed what had been informal and perhaps only implied. Failure to achieve the desired formality does not affect the contractual rights and obligations already in place by virtue of the underlying provisional agreement. See further Chu Wing Ning v. Ngan Hing Cheung & Another (H.C.A. No. A9409 of 1991, decision 6th November 1992).

Letter of 29th November 1996

48. Mr Mui argued that since both parties did not agree to the insertion of new terms into the formal agreement, no formal agreement could be executed. In this respect, the Purchaser asked the Vendor's solicitors to stakehold the said Hong Kong $17,300.00. Instead of choosing to back out the Provisional Agreement, the Purchaser had remained in the hope that this transaction could still be completed and thus insisted on sending the $17,300.00 to the Vendor's solicitors for stakeholding.

49. Notwithstanding what Mr Mui said, the reason why the further sum of $117,300 was paid is not contained in any of the affidavit evidence filed by the parties. I have to construe Yaddy Cheung's letter of 29th November 1996 to see whether the Plaintiff still wished to keep the contract alive notwithstanding the defect in title. Although the concluding parts of the letter were not stated in an assertive manner, I am satisfied that, reading the letter as a whole, the Plaintiff was in fact accepting the breach and calling the contract to an end. The Plaintiff had clearly stated that the Defendant was not in a position to show good title. She asked for the return of the deposit and stated that a vendor and purchaser summons would be taken out to seek appropriate declarations. These were inconsistent with someone who still wished to perform the Provisional Agreement. I come to the view that the Defendant was not entitled to forfeit the deposit of $100,000. On 29th November 1996, the Plaintiff had exercised his right of rescission due to the inability of the Defendant to show a good title to the Property.

Orders

50. I will therefore make the following orders in favour of the Plaintiff -

1. A declaration that the Defendant had failed to answer the requisition of title;

2. A declaration that the Defendant had failed to show a good title to the Property;

3. An order that the Defendant do return to the Plaintiff the deposit of $100,000;

4. An order that the Defendant do pay to the Plaintiff the costs of investigating the title of the Property and cost nisi of the application.

Other relief

51. The Plaintiff is also seeking a declaration that she is entitled to be reimbursed by the Defendant of the commission that has been paid by her to the estate agent Wai Ming Properties Company ("the agent").

52. The Provisional Agreement was signed by three parties, namely, the Plaintiff, the Defendant and the agent. Clause 5 of the Provisional Agreement provided that the Purchaser agreed to pay to the agent $11,730 being its service fees upon signing of the formal agreement for sale and purchase. Clause 11 provided that -

"Compensation to the Company (i.e. the agent)

If, in any event, either the Vendor or the Purchaser fails to complete the sale or purchase in accordance with the terms and conditions herein contained, the defaulting party shall compensate at once the Company's service fees in the sum of HK$11730.00 as liquidated damages."

Mr Mui informed the Court that the Plaintiff had already paid the service fees to the agent and hence she is entitled to recover the amount from the Defendant.

53. One must construe the obligation of the parties in accordance with the terms of the Provisional Agreement. With respect to Mr Mui, under the Provisional Agreement, the Plaintiff's obligation to pay the service fees had not arisen because the formal agreement had not been signed. The payment was made by the Plaintiff gratuitously to the agent. If the Plaintiff said that the agent should not receive this amount, then she should seek to recover it from the agent. It is for the agent to invoke the provisions of clause 11 in order to recover the service fees from the Defendant. In the circumstances I will not make such an order in favour of the Plaintiff.