PIONEER WAY DEVELOPMENT LTD v. CHEUNG MARY

HCA717/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.717 OF 2005

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J U D G M E N T

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1. Conveyancing of landed property in Hong Kong is an everyday life.  In most cases, there is no dispute in the subject matter between the parties.  However, it is not the case here.  The main dispute between the plaintiff and the defendant herein is what was agreed to be sold by the defendant to the plaintiff.  It happened in the following story.

The story

2. “ Madam Cheung” Mary had been the owner of Flat B on the 14^th floor, Block A, Lai Sing Court, No.13 Tai Hang Road, Hong Kong, with Car Park No.27 on the lower ground floor (“the said premises”), since 13 May 1995.

3. On 1 May 2001, development agreements were entered into among :

(1) most owners of Lai Sing Court which was described as “the majority owners”, meaning that all their shares in the undivided share of the land was at least 90 per cent (and they included Madam Cheung);

(2) “Hong Kong Glory” Properties Limited as the developer; and

(3) “Hongkong Land” Ltd as a guarantor.

(See C84 of the bundle.)

4. Hong Kong Glory was the designated developer of Hongkong Land to redevelop the whole property of Lai Sing Court.  The majority owners had agreed to convey their property to the developer subject to the terms and conditions of the development agreement.  Messrs Fairbairn Catley Low & Kong (“FCLK”), acted for all the majority owners, including Madam Cheung.

5. The development agreements provided, inter alia, in Clause 2.05, that each of the majority owners undertook with the developer that, “he will not, without the prior written consent of the developer whose consent shall not be unreasonably withheld,” dispose of his property without the prior written consent of the developer, subject also to various terms.  One of the terms in subparagraph (a) was :

“The purchaser from the Majority Owner shall have at the same time executed a counterpart of this Agreement and have executed the Power of Attorney in each case in accordance with the provisions under Clause 16.” 

6. Further, one of the other three conditions is :

“The majority owner shall have settled all costs and expenses incurred by the Developer of and incidental to giving its consent to the disposal and execution of the counterpart of this Agreement and the Power of Attorney by his purchaser.”

7. Together with the development agreements, each of the owners had signed a power of attorney in favour of the developer.  One of the powers given to the developer as donee of the power of attorney was for the developer to apply to the Lands Tribunal for an order of compulsory sale for redevelopment.  Such an application was made on 6 October 2003.

8. In or about October 2004, negotiations for the sale of the said premises were entered into between Madam Cheung and one Mr Chang Juo Hwa (“Mr Chang”) through Centaline Property Agency Limited.  Mr Chang knew that the flat had already been sold for redevelopment by Madam Cheung, although conveyancing completion of the sale had not been completed.  In fact, Madam Cheung had not covered up that fact from Mr Chang.

9. On 27 October 2004, the plaintiff’s limited company was incorporated and was used by Mr Chang to enter into a provisional sale and purchase agreement (“PSPA”) on 31 October 2004 with the defendant, Madam Cheung, and Centaline Property Agency Limited.  The PSPA stipulated as follows :

“The vendor shall sell and the purchaser shall purchase all that [(then followed with the description of the property hereinbefore mentioned)] (hereinafter called ‘the said premises’) through the agent subject to the terms and conditions herein contained.”

The terms of PSPA

10. Clause 3 provided that, upon completion, the vendor shall deliver vacant possession of the said premises to the purchaser.  I would say at this juncture that this must be read as subject to a tenancy agreement entered into between Madam Cheung and the defendant which I shall explain later when I deal with the tenancy agreement.

11. There were, additionally, terms (A) to (H) which are quite different from the printed provisional agreement of Centaline Property Agency.  For the purpose of this judgment, I think I should set out the terms (A), (B) and (C) hereinafter :

“A. Subject to Clause B hereof, the said premises will be sold subject to and with the benefit of a Development Agreement dated as of the 1^st May 2001 entered into between HK Glory Properties Limited (‘the Developer’) as the Developer Hongkong Land Limited (‘the Guarantor’) as the Guarntor and the Vendor as one of the Majority Owners registered in the Land Registry by Memorial No.8410278 as subsequently supplemented by a confirmation Letter and a Supplemental Agreement both signed by the same parties (the said Development Agreement as subsequently supplemented by the Confirmation Letter and Supplemental Agreement are collectively called ‘the Development Agreement’) under which the Majority Owners and the Developer agreed to apply for an order for compulsory sale of the building of which the said premises form part under the Land (Compulsory Sale for Redevelopment) Ordinance and to redevelop the Land on which the building is erected by demolition of the building and erection of a new building on the term and conditions as contained in the Development Agreement.

B. The sale of the said premises is conditional upon the following:-

(a) consent being given by the Developer under the terms of the Development Agreement to the sale of the said premises to the Purchaser; and

(b) the Purchaser signing and delivering to the Vendor on or prior to completion a counterpart of the Development Agreement and a Power of Attorney as required pursuant to the terms of Clause 2.05(2) of the Development Agreement.

In the event that the consents referred to above are not given by the Developer before the signing of the formal Agreement for sale and purchase hereinbefore stipulated, the deposit paid by the Purchaser hereunder shall forthwith be returned by the Vendor to the Purchaser but without interest, if that return is made within 7 days, or compensation and in such event this Agreement shall be treated as null and void and of no further effect and the parties hereto shall enter into a Cancellation Agreement.

C. The parties hereto agree that the said premises will be sold subject also to and with the benefit the terms of the said Consent and the Purchaser agrees to indemnify the Vendor against any loss and damage incurred as a result of the Purchaser failing to perform the terms of the Development Agreement so far as they relate to the said premises.”

12. In this case I have to construe the terms of this agreement in order to ascertain the subject matter of the said premises intended to be sold by Madam Cheung to the plaintiff.

13. In effect, Clause (A), to my mind, has the effect of selling the rights and benefits, and of course the obligation of Madam Cheung under the development agreements, but not otherwise.  Both sides agreed that their PSPA shall be subject to this development agreement of 1 May 2001.

14. The effect of Clause (B) is that the sale of the subject matter is conditional upon the written consent being given by the developer.  Otherwise the PSPA shall be null and void and of no further effect.

15. The effect of Clause (C) is that the parties agree that the said premises will be sold subject also to and with the benefit of the terms of the said consent, meaning the written consent given by the developer, and the plaintiff agrees to indemnify the vendor in case the developer would pursue anything against the vendor.  In other words, if the developer, in giving a consent, stipulated that one of the conditions will be it would not relieve the vendor of its liability, then it will be wise and sage for Madam Cheung to stipulate that the plaintiff should indemnify her.

16. Further, Clause (E) provided that Madam Cheung should pay all costs and disbursements payable to the developer and the guarantor’s solicitors, Messrs Johnson Stokes & Master (“JSM”), for processing the consent.  In other words, these costs and disbursements will not be on the head of the plaintiff, being the purchaser.

17. I shall refer to Clauses (E), (F) and (G) later on as they were relied on by Mr Jimmy Kwong, counsel for the purchaser plaintiff.

18. From the evidence before me, I have concluded that the subject matter must include the rights and benefits, together of course with the obligations under the development agreement.  I will take one scenario as the most likely scenario of what will happen under the PSPA, the tenancy agreement, and the development agreement. 

The first scenario

19. Assuming, just for the purpose of argument, the conveyancing from the defendant to the plaintiff was completed on or before 30 April 2005, as stipulated in the PSPA, with the written consent of the developer.  It was only thereafter that Madam Cheung then conveyed her interests in the said premises and in the development agreement to the developer.  Further, there was a tenancy agreement between the plaintiff and the defendant whereby the plaintiff agreed to grant sub-tenancy to Madam Cheung from the very day after the last day of completion, and that is 1 May 2005.  The term of that tenancy agreement (at bundle D791) is in the following Chinese wording : “由1/5/2005至發展商提出拆樓搬遷一個月內” (From 1.5.2005 to [a date] within one month after being told by the developer to vacate the premises for redevelopment).

20. Thus, in the first scenario, from 1 May 2005 Madam Cheung will occupy the flat together with the car park until within one month when the developer gave notice that the owners and occupiers would have to move out of the building for the purpose of development.  Such a term was provided in the development agreement and that is how I understand by this provision of “拆樓搬遷” (to vacate the premises for redevelopment).

21. Assuming if Madam Cheung was right in saying that “I have no intention to assign the rights and obligations under the development agreement,” then what would have happened when vacant possession was delivered to the developer for demolition in the development?  Does it mean that the interest of the plaintiff purchaser — and I ask rhetorically — would come to an end and therefore he has bought absolutely nothing by paying $6.6 million? 

22. It does not even answer the question, when the defendant offered to pay back the deposit of $660,000 to the plaintiff and would not ask for the balance.  The question still is : what had he bought in the agreement?  Does it mean that he paid $660,000 so that Madam Cheung could reside after the completion, from 1 May 2005 up to within one month of the demolition notice?  At the end of the day, it does not make sense, even if the plaintiff got back his deposit, without interest, according to one provision of the PSPA (or even with interest).

23. I must say that this is not a point taken by Mr Li Chau Yuen, counsel for the defendant.  He did not subscribe to such a view.  In other words, when I consider the subject matter of the said premises, I would say that it does not lie in the mouth of Madam Cheung to say that when she entered into the PSPA, it had never passed her mind that the subject matter of the transaction was her rights and interest in the said development agreement.  She further said in her witness statement : “If the subject matter of the transaction was her rights and interest under the said development agreement, she would not have agreed to enter into the PSPA as it would mean she could be deprived of some benefit under the said development agreement, such as the cash compensation.”

24. She did not say that in this court since both parties agreed that no oral evidence could and therefore should be led from any witness in the matter of construction of written agreements.  Thus if she said that in the witness-box, she would be cross-examined severely on such a version by counsel for the plaintiff and, as expected, she could not give any satisfactory answer as to why she considered that she was not selling the rights and benefits under the development agreement.

Subsequent events — the actual scenario

25. After the PSPA, Messrs John Ho & Tsui (“JHT”), solicitors for the plaintiff, wrote to FCLK, solicitors for the defendant, enclosing the PSPA therewith by their letter dated 9 November 2004, (D500).  They also requested the draft formal agreement for sale and purchase for their approval and the relevant title deeds and documents for their perusal as soon as possible.  This letter was stated clearly as : “Subject to contract but without prejudice to PSPA dated 31 October 2004”.

26. No draft formal agreement for sale and purchase draft was provided to JHT and in fact JHT did not, from the papers before me, chase after them for such a formal agreement for sale and purchase.  So the agreement between the parties is just within the four corners of their PSPA.

27. The next thing that happened was, on 25 November 2004, the Lands Tribunal made an order for sale of the lots by appointing two trustees for and on behalf of the owners of the lots, to convey the whole lots to the developer.  The plaintiff had already paid $330,000 on the date of the PSPA on 31 October 2004 and on 31 December 2004, it paid a further deposit of $330,000, making a total of $660,000 as stipulated in the PSPA.

28. On 21 January 2005, the lot was sold by public auction and the memorandum of agreement for sale and purchase was signed.  It was only by 12 February 2005, the defendant’s solicitors, FCLK, sent a letter to the developer’s solicitor, JSM, seeking their consent for the proposed sale of the said premises.

29. Shortly thereafter, on 22 February 2005, the sale and purchase of the lots by the majority owners to the developer was completed by the two trustees as appointed by the Lands Tribunal.  Thereafter, on 24 February 2005, Madam Cheung received part of the cash compensation, being 20 per cent thereof, in the sum of $80,000 according to the development agreement and signed a confirmation letter to that effect.  Thus, there was a balance of $360,000 cash compensation outstanding which would later on be given according to the development agreement. 

30. On 3 March 2005 (at D815) JSM wrote to FCLK and said that : “As the purchase of the whole development by our client has been completed, it is no longer appropriate to give any consent to the provisional agreement your client [i.e. Madam Cheung] has entered into”.  It is therefore not correct for counsel for the defendant, Mr C.Y. Li, to say in his chronology that the JSM letter to FCLK was to the effect that the developer refused to give consent to the sale of the said premises by the defendant to the plaintiff. 

31. The developer has not refused any consent, he only stated a reason which is very reasonable, that it is no longer appropriate to give any consent to the provisional agreement; that is, the sale of the said premises to the plaintiff as the said premises has already been sold by the trustees to the developer.

32. I am not severely criticising Mr Li.  I find his chronology very helpful, but this is a mis-description of this letter and there was no refusal which I could gather from this letter.  In fact, in the same letter, JSM asked FCLK to confirm, if Madam Cheung intended to assign her rights in the development agreement and apply to the developer for his consent to such a disposal, then they would like to have certain information for the developer’s consideration, and they are : 

(1)     the name of the ultimate beneficial owner of the prospective assignee, that is the actual ultimate beneficial owner of this limited company of the plaintiff;

(2)     whether the beneficial owner was willing to enter into a declaration confirming his sole ownership of the assignee and guarantee that no change in the issue share capital of the assignee, i.e. the plaintiff’s limited company, would occur without obtaining prior written consent from the developer;

(3)     whether the beneficial owner is also willing to guarantee the due compliance with all terms under the four agreements entered between the owner and the developer; and

(4)     whether the assignee is willing to enter into all agreements entered between Madam Cheung and the developer. 

33. I should say that JSM’s clients included the guarantor and not just limited to the developer, and that is Hongkong Land.

34. To that inquiry which eventually was made known to JHT, JHT lost no time in replying to that letter quickly.  I mean precisely and concisely.  His answer was, (1) the ultimate beneficial owner is Chang Juo Hwa, and (2) the answers to Questions 2 to 4 are all in the affirmative.  That was the letter dated 18 March 2005.

35. In the meantime, FCLK, by letter dated 7 March 2005, wrote to JHT and informed them that the said premises, together with four other units of the lot, had already been conveyed by the trustees appointed by the Lands Tribunal to the developer on 22 February 2005. 

36. They further said :

“It is therefore inappropriate for HK Glory Properties Limited, the Developer named in the Development Agreement dated 1 May 2001 (registered in the Lands Registry by Memorial No.84102878) to give any consent to the Provisional Agreement dated 31^st October 2004 entered into between our respective clients.  We enclose for your reference copy letter of Messrs Johnson Stokes & Master dated 3^rd March 2005, the contents of which are self-explanatory.”

37. It is therefore not correct, again, for counsel for the defendant to say, in the chronology, that FCLK’s letter to JHT was to inform the plaintiff that the developer did not give the consent.  That was not said in the letter and I do not read this letter with such an effect. 

38. JHT therefore asked for a copy of the development agreement mentioned by a memorial number on 8 March 2005, and on 11 March 2005, FCLK furnished JHT with that development agreement together with the supplemental agreement by a memorial number and a confirmation letter dated 24 December 2003, on the usual undertaking of JHT.  I should mention that that letter of JHT dated 18 March to JSM was also copied to FCLK on the same date.

39. Then comes two important letters dated 24 March 2005.  The first one should be at D823 to 824, from JSM to JHT and copied to FCLK.  The other letter, which came subsequently, was at the previous page and that is page 822, from JHT to FCLK.  JSM’s letter to JHT set out the conditions for the developer before the developer would give his consent to the defendant to assign her rights under the development agreement.  JSM repeated its earlier reasoning for saying that it is no longer appropriate to give any consent to the provisional agreement that Madam Cheung had entered into with the plaintiff.

40. Further, the developer would consider granting its consent under the following conditions and arrangements :

(1) Madam Cheung would have to deliver vacant possession of the premises to the developer on or before the assignment of rights, benefits and obligations under the development agreement. 

(2) There should be a three-party agreement among the developer, Madam Cheung, and the purchaser, the plaintiff, to the effect that :

(i) all the rights and entitlement to the new unit shall be assigned to the plaintiff;

(ii) all the developer’s obligations to Madam Cheung should be discharged;

(iii) all parties agree and direct the developer to pay to the purchaser the balance of cash compensation, reimbursement of management fees, etc.;

(iv) redemption loan and relocation loan advanced by the developer to Madam Cheung under the development agreement, if any, shall be repaid in full; and

(v) any other provisions that the developer considers necessary.

41. There are other conditions and arrangements set out in paragraphs 3 to 7 thereof. 

42. On the same date, JHT wrote to FCLK referring to JSM’s letter of the same date, and said as follows — I quote it in full because certain things turn on the exact wordings used by JHT : 

“We write to put on record that your client is bound by the Provisional Agreement dated 1^st October 2004 to assign your client’s rights in the Development Agreement to our client, notwithstanding that the purchase of whole development by the Developer has been completed.  Accordingly, your client should confirm forthwith to Messrs Johnson Stokes & Master, Solicitors for the Developer her intention to assign her rights in the Development Agreement to our client.

We also write to put on record that your client is also bound by the Provisional Agreement, notwithstanding that consent is not granted by 30^th April 2005 as your client fails to act promptly to obtain the consent.”

43. Apparently, from the pleadings in this case, nothing turns on the alleged breach of Madam Cheung by her or her solicitors not to act promptly to obtain the consent. 

44. On 29 March 2005, that is just three days before the deadline of the formal sale and purchase agreement, FCLK wrote to JHT and said :

“Our client is of the view that consent to the sale of the Property has not been granted by HK Glory Properties Limited, the Developer named in the Development Agreement under the letter of Messrs Johnson Stokes & Master dated 3 October 2005.  Hence, the Provisional Agreement dated the 31^st day of October 2004 made between our client as the vendor of the first part your client as the purchaser of the second part and Centaline Property Agency Limited as the agent of the third part shall be treated as null and void and of no further effect.  A Cancellation Agreement should therefore be signed between our respective clients pursuant to the term of the Provisional Agreement.” 

45. Accordingly, FCLK furnished a draft cancellation agreement in duplicate for the plaintiff to sign on both of them, and a cheque drawn in favour of the plaintiff for the total sum of the deposit paid, $660,000 as the refund of deposit under the cancellation agreement.

46. This letter written to FCLK was copied to JSM by letter dated the next day, i.e. 30 March 2005.  

47. JSM’s letter of 24 March 2005 in fact can only mean that JSM considered if the defendant was assigning rights and benefits and operation of the development agreement, it could be done there and then by the following methods.  In the letter they enclosed three drafts documents which were required to be executed by Madam Cheung and the plaintiff, and they are : 

(1) formal consent letter to be signed by Madam Cheung, the intending assignee and its ultimate beneficial owner;

(2) letter of guarantee to be signed by the ultimate beneficial owner of the intending assignee; and

(3) deed of assignment to be signed by Madam Cheung, the intending assignee, i.e. the plaintiff and the developer.

48. JSM also asked FCLK to confirm that their clients agreed to the conditions and arrangements set out in the formal consent letters.  As prudent solicitors, JSM also said that : “As a matter of urgency, we would process your client’s application immediately upon our receipt of the relevant confirmation.” 

49. Obviously, JSM was aware that the formal sale and purchase agreement would have to be signed on or before 31 March 2005 and completion on or before 30 April 2005.  They were accommodating in the sense that they would try to beat the deadline stipulated in the PSPA agreement.

50. The next thing that happened was JHT wrote, on 30 March 2005, and said inter alia that unless Madam Cheung confirmed to JSM by 5 p.m., 30 March 2005, her intention to assign her rights in the development agreement to the plaintiff, JHT would take that PSPA as repudiated by Madam Cheung and they have instructions to institute proceedings against Madam Cheung and, in this respect, they would like to know whether FCLK has instructions to accept service.

51. By 30 March on the same date, FCLK wrote back and said : 

“We are instructed to deny all the allegations stated in your said letter since consent has never been given by the Developer to the sale of the Property pursuant to the terms of the Provisional Agreement for sale and purchase dated 31^st October 2004 entered into between our respective clients.  We hereby reiterate our client’s view as expressed in our letter of the 29^th instant.”

52. I notice that even by the letter of FCLK, 30 March 2005 and its previous letter on the 29^th, the defendant’s solicitors, on instructions, did not say that Madam Cheung has no intention to assign her rights in the development agreement to the purchaser.  Such a point was taken only by the last date, and that is 31 March 2005, the first stipulated deadline for the formal sale and purchase agreement.

53. In fact, on that day, there were four letters from various parties.  First of all, FCLK wrote to JSM and said that Madam Cheung actually had no intention to assign her rights in the development agreement to the purchaser.  This was not apparent in their previous letter to JSM that was copied to JHT. 

54. JHT wrote by their letter on the same date, on an urgent basis, by fax and by hand, and said that by the letter from JSM to FCLK, copied to their firm, the developer and the guarantor had granted consent to the vendor to assign her rights, benefits and obligations under the development agreement, and in the event Madam Cheung failed to give written confirmation that she agreed to the conditions and arrangements set out in the formal consent letter “by 5 pm today”, then she would be considered as in breach of the provisional agreement.  They also enclosed the JSM letter copied to FCLK, which in fact they had already received.

55. The third letter was also from JHT to FCLK and said that the letter from FCLK to JSM saying that Madam Cheung had no intention to assign her rights in the development agreement to the plaintiff herein, that JHT would like to put on record that the PSPA was wrongly repudiated by Madam Cheung and the plaintiff would hold Madam Cheung liable for her breach.

56. Lastly, the fourth letter was the third letter of JHT directed to JSM with a copy to FCLK.  That confirmed that the plaintiff agreed to execute the letter of guarantee and the deed of assignment in the form provided by JSM.  In other words, the evidence was clearly that the plaintiff was ready, willing and able to perform the completion as stipulated or suggested by JSM.

The dispute

57. The dispute then started as to what is the subject matter that has been conveyed or agreed to be sold, in layman’s terms, from the defendant to the plaintiff. 

58. I ask, again rhetorically, if the subject matter does not include the obligations, rights and benefits under the development agreement, does it mean that the subject matter is only the premises?  And the premises, of course, in legal terms, was only the undivided share of the land in question owned by Madam Cheung with the exclusive right to possession of the flat and the car park.  If that was meant to be conveyed to the defendant, subject to the consent of the developer, why that could not be done before 31 March 2005 for the purpose of entering into a formal sale and purchase agreement and, for that purpose, the completion of the conveyancing on or before 30 April 2005?

59. The first point taken by the defence was a pleading point.  Mr Li submitted that it has never been pleaded clearly that that was the subject matter of the sale.  I do not blame Mr Li for taking that point.  The statement of claim was drafted or settled by counsel for the plaintiff in such a way that much more is desired. 

60. It was pleaded that by the written provisional agreement dated 31 October 2004, the plaintiff agreed to purchase and the defendant agreed to sell the said premises for the price of $6.6 million.  It was never pleaded specifically that the said premises, which was defined as the flat and the car park, included the obligations and benefits under the development agreement.  However, Clause A was pleaded verbatim as an additional Clause A in paragraph 4(c), together with Clauses B and C in verbatim form. 

61. Counsel for the plaintiff went on to plead that, (paragraph 5) : 

“The following are conditions of the Provisional Agreement either implied by law or necessarily by business efficacy :

(a) the Defendant shall co-operate with the Plaintiff and concur in obtaining the consent of the Developer (‘the Consent’) referred to in the additional clauses A and B;

(b) the Defendant shall not do any acts which would prevent the fulfilment of any condition to which the Provisional Agreement was subject.”

62. To that paragraph, it was pleaded in the defence and counterclaim, which was drafted or settled by Mr Li for the defendant, that, (paragraph 9) : 

“Save that : 

(a)   the Provisional Agreement contained the implied term that the Defendant would co-operate with the Plaintiff in the performance of the terms of the Provisional Agreement and that the Defendant would not do anything which would prevent the fulfilment of the terms of the Provisional Agreement, paragraphs 5(a) and (b) of the Amended Statement of Claim are not admitted.”

63. In other words, the defendant, by admission, agreed that she would have the duty to co-operate with the plaintiff in the performance of the terms of the provisional agreement and she would not do anything which would prevent the fulfilment of the terms of the provisional agreement.  Of course, in the defence, they said the subject matter is only the premises and the premises comprise the flat and the car park. 

64. But then if the subject matter is otherwise, then she would have a duty to co-operate with the plaintiff in the performance of the provisional agreement and would not do anything which would prevent the fulfilment of the terms of the provisional agreement and, in that case, she would do everything in her power to obtain the consent of the developer in order that the subject matter of the agreement would be conveyed to the plaintiff. 

65. She considered the subject matter is otherwise, but I have decided that it is not otherwise.  It contained the obligations and benefits of the development agreement and, therefore, she was bound, by her own admission, that she had the duty to co-operate with the plaintiff in obtaining the consent of the developer. 

66. I am afraid the statement of claim as drafted, as I have said, is not in the form which should be desired.  Paragraph 6 pleaded that :  

“Wrongfully and in breach of the Provisional Agreement, by letter from the Defendant’s solicitors, Messrs Fairbairn Catley Low & Kong, to the solicitors of the Developer, dated 31^st March 2005 ‘(the Letter)’, the Defendant stopped the Developer from issuing the Consent.”

67. The evidence before me is not that Madam Cheung stopped the developer from issuing the consent.  Madam Cheung considered that the developer, before they would give the consent in the way they have suggested would like certain conditions to be fulfilled.  One of the conditions is, of course, Madam Cheung would have to confirm to them that she intended to convey her rights under the development agreement which she said she did not, as aforesaid. 

68. So the issue is not stopping the developer from giving the consent.  It might have caused the whole process to stand still if that was what is meant by the pleader that Madam Cheung, in effect, stopped the whole mechanism of obtaining the consent of the developer from issuing the written consent.  Then of course the facts before me would barely come within what was pleaded in paragraph 6, but apparently, the word “stopped” used here is not a pleading language.

69. Paragraph 7 said : 

“Further or in the alternative, at all material times, the Consent was not necessary or otherwise impliedly given by the Developer.” 

I do not know why the pleader used the word “not necessary”.  The more appropriate word to be used is, as used by JSM, “inappropriate”.

70. The other scenario, and that is otherwise impliedly given by the developer, meant, to my mind, that the developer was about to give his consent to the conveyancing of the assignment.  I mean the assignment between the plaintiff and defendant, subject to certain terms, but Madam Cheung wrongfully refused to confirm with JSM that she actually intended to assign her rights and benefits under the PSPA and, therefore, the whole process of obtaining the consent from the developer through JSM came to a standstill, or ceased.

The defence

71. What, therefore, is the defence of the defendant?  Mr Li gave me a helpful, lengthy recital of the history of the case in his “Opening Submission of D”, at page 15 thereof.  He started off by saying that :

“It is as plain as a pikestaff that the subject matter of the transaction covered by the provisional sale and purchase agreement was the Property and not the defendant’s rights and interest under the Development Agreement.” 

72. I must say that I take exception to that, and to my mind, the situation is exactly otherwise.  That is as clear as broad daylight the subject matter was not only the said premises owned by Madam Cheung, but the said premises together with the rights and obligations under the development agreement were intended to be assigned by the defendant to the plaintiff.  Otherwise it will make no business sense for the plaintiff to acquire the said premises without the rights and benefits of the development agreement. 

73. Although provisional agreement was drafted in such a way by adding terms A to H to the standardised printed form of the PSPA of Centaline Agency, which is much more than desired, the subject matter is quite clear from the four corners of the agreement.  Clause A already said that the premises will be sold subject to and with the benefit of a development agreement dated as of 1 May 2001, entered into between the developer, the guarantor, and the vendor/defendant.  It would not have any other meaning if the benefit of a development agreement was not included in the subject matter of the sale.

74. Clause B only stipulated that such a sale and purchase of such a subject matter is only conditional of a consent being given by the developer and the purchaser should execute certain documents according to the development agreement.  It was only in the event that the developer did not give his consent to the signing of the formal agreement for sale and purchase, the deposit will be paid back by the vendor to the purchaser, without interest, within seven days, and the PSPA shall be treated as null and void and of no further effect, and the parties thereto should enter into a cancellation agreement.

75. It is not the case, to my mind, that the developer did not give its consent.  The developer was about to give his consent in order, to use the words of Mr Li in the defence, to give effect to the performance of the terms of the provisional agreement, and the defendant had agreed that she would not do anything which would prevent the fulfilment of the terms of the provisional agreement.

76. Mr Li further submitted for the defence that :

“… if the true intention of the parties was the sale and purchase of the defendant’s rights and interest in the development agreement, the provisional sale and purchase would have spelt it or indeed there could simply be an outright assignment of the rights and benefits in the development agreement by the defendant to the plaintiff, (if that can be done)”.

77. Obviously, Mr Li is right in the sense that the PSPA could be drafted in a better form, but that is not an answer to the question of what was the subject matter that was conveyed, or intended to be sold.  If it was drafted in such a form, of course, there would not be any dispute between the parties on the subject matter.  I am not sure whether there are other disputes but, in any event, this case will not come before me as it is. 

78. However, we must remember that this is only a PSPA and the parties anticipated, and agreed actually, that a formal sale and purchase agreement would have to be drafted by the solicitors for the vendor to be approved by the purchaser, and when such an event took place, then I am sure solicitors being seized of the matter will have drafted it in such a way as suggested by Mr Li.  But such a formal sale and purchase agreement was not sent to JHT for their approval and when the same was about to be done, the defendant’s interest in the said premises has already been conveyed, by the two trustees, to the developer.

79. Apparently, the strongest point taken by Mr Li was that it was stipulated in Clause B that, in the event no consent was given by the developer, the PSPA will become null and void.  So Mr Li submitted that this is simply a case that, in fact, there was no consent from the developer and, therefore he said, “Look at Clause B; it says that the agreement will become null and void and we have accordingly returned the deposit, without interest, and the plaintiff should sign the cancellation agreement”.

80. However, if the subject matter is not just the premises as alleged by the defence, then the consent yet to be given by the developer was not given not because the developer did not give his consent.  It is stipulated clearly in the development agreement that the developer could not withhold the consent unreasonably.  The developer and its solicitors have been acting in a very reasonable and exemplary manner and, that is, by taking the commercial and business reality of the situation, they sent the suggested documents to be executed by all parties.  Of course, the defendant and plaintiff would have to confirm that they would accept such terms before the developer would consider whether to give its consent or not.

81. It was the defendant who had stopped, to use the word of Mr Kwong, the whole process of obtaining the consent by saying that “I did not intend to assign my rights and benefits in the development agreement, and therefore there’s no point of going any further with JSM’s suggestion”.  Then if she is wrong in the subject matter, she stands or falls on her own wrong.

82. There are other minor points raised by Mr Li.  One thing I would like to point out is Mr Li, in his original submissions, relied on the tenancy agreement and said that the performance would be difficult since it was agreed between the plaintiff and the defendant that there should be a short-term tenancy from the very day after the completion day, that is 1 May 2005, up to within a month of the receipt of the developer’s Vacation Notice.

83. Before this judgment was delivered, in answer to my question, Mr Li has fairly and sensibly accepted that this tenancy agreement must be subject to the consent of the developer, because Madam Cheung could not grant a tenancy agreement without the consent of the developer and, as the owner, if she created a tenancy agreement here in her own favour, this still required the consent of the developer.  The plaintiff could not grant a tenancy agreement without the developer’s consent, since he, as defendant herself said, should know, or be presumed to have known the development agreement.  Thus the tenancy agreement is just a red herring and nothing more.

84. If JSM’s suggestion was taken up by both parties and they signed all the documents, then of course both of them would have to apply, or at least the plaintiff, as the new owner, would have to apply, under the development agreement and the documents they had signed, for the consent of the developer to such a tenancy agreement.  The developer might have some view about the length of the tenancy agreement and counter-offered or suggested terms or stipulated a term, a different term, before he gave his consent.  So I cannot say that the tenancy agreement is a stumbling block and therefore the PSPA could not be performed because there is a tenancy agreement between the two parties.

85. In respect of the tenancy agreement, there are only two scenarios and that is, (1) she would stay in the old flat until shortly before the demolition; (2) she could not stay in the old flat as the developer will not consent to that tenancy agreement.  With or without consent, it would not be a defence to say that since there is a tenancy agreement, the subject matter of agreement would not be the benefits under the development agreement.

86. Lastly, I just want to add that the date of vacating the premises by Madam Cheung is neither here nor there under the tenancy agreement because it would require the consent of the developer anyway.

87. The other point is Madam Cheung said : “If I’d known that I have conveyed the rights and benefits of the development agreement, I would not have done so because, in that case, I would not be entitled to the cash compensation”.  The first question is why should she be entitled to cash compensation if the subject matter she has sold is the premises together with the benefits of the development agreement?  If that was not so, why should Mr Chang and, in turn, his company, the plaintiff, pay $6.6 million to get the old flat which would soon be demolished?  And knowing that it will be demolished and redeveloped into a new unit, was it the case that he is only entitled to a new unit without the cash compensation?  The PSPA did not say so.

88. Further, she has already received the cash compensation; 20 per cent of the cash compensation is, as I have said earlier, in the sum of $80,000.  This cannot be a stumbling block to avoid specific performance.  The suggestion of JSM was that they should sign an agreement stipulated to the effect that the assignee would be entitled only to the balance of the cash compensation, and that settled the matter.  That is, Madam Cheung will keep the $80,000 but the balance after the completion of the assignment will belong to the plaintiff.

89. Mr Li further relied on the other terms of the PSPA, Clauses E, F and G.  To my mind, these clauses actually point the other way, and that is the subject matter must include the benefits and not just the premises.  Clause E is concerned with the developer’s agreement under the development agreement to reimburse Madam Cheung the management fee actually paid by her from 1 May 2001 until whichever is the earlier of the demolition of the building, etc.

90. Clause F is concerned with a building order issued by the Building Authority against the said premises.  The purchaser agreed that he would be responsible for the costs of all that is required under the order.  In other words, the vendor, Madam Cheung, would not be responsible for the existing order.  Why should the plaintiff be responsible for such an order, which might turn out to be very expensive, if he would not get the benefits under the development agreement?  To my mind, it does not make sense at all.

The plaintiff’s submission

91. I entirely agree with Mr Kwong when he submitted at the outset that : “In the huge smog of dust picked up by the artful defence, there was only one issue for the ultimate decision of this case, and that was what was contracted by the vendor/defendant to sell and the purchaser/plaintiff to buy.” 

92. He cited the case of Asia Shiny Limited v. Leung Kai Yuen before Master Au-Yeung, (HCA1322/2005 unreported).  The decision was made on 8 June 2006.  Since masters are not required to give reasons for their decisions, written reasons for decision did not contain the full facts of the case, but suffice it for me to say that it is apparent from the written decision that the case concerned exactly with the same building, and that is Lai Sing Court.  The plaintiff was the purchaser and the defendant was an owner of another unit in the same way as Madam Cheung. 

93. It was said in the judgment : 

“3. The plaintiff’s case rested wholly on implied terms instead of express term, although it would have been better for the case to be framed in the alternative’ [i.e. as an express term].  ‘Mr Yee’s submission’ [i.e. counsel for the purchaser/plaintiff] ‘was that he would win on establishing any one of them.’ …

6. Term C.  The validity of this term turned on the real subject matter of the PSPA. The Plaintiff claimed that it was the property with the attendant benefits under the development agreement that was the subject matter.  The defendant submitted that it was just the property.  I have asked Mr Li, counsel for the defendant, what the difference in substance between the two alleged subject matter was.  He could not give any satisfactory answer.  In my view, to use the analogy of Mr Yee, counsel for the plaintiff, the defendant has contracted to sell a tadpole to the plaintiff.  To both parties’ knowledge, this tadpole carried with it the genes that would enable it to mature into a frog, or even a prince.  When the tadpole eventually turned into a frog, it was no defence to say that performance was impossible.  The plaintiff could still ask for the frog which was inseparable from the tadpole.  In fact, I have asked Mr Li that if the developer’s consent was forthcoming, what should the defendant give over to the plaintiff and which part of the benefits under the development agreement could be retained ... on his case.  Again, Mr Li could not give any satisfactory answer.  I do not see any inconsistency between Term C and the PSPA.”

94. Mr Kwong submitted that this is a wonderful analogy and he respectfully adopted the analogy of the tadpole, the frog and the prince.  I said earlier that I would agree that it is a case of a tadpole and a frog, but not the prince.  To my mind, as the story goes, the frog became a prince not because of the genes of the tadpole, it was because of witchcraft and the destruction of the same.  But at least the plaintiff is entitled to the frog which is anticipated and known to the parties that the tadpole would become a frog. 

95. In this case, it is known to both parties that the old building will be demolished and a new building will be redeveloped, and each owner will be entitled to a flat not less than a certain area with a similar direction and not lower than the level they previously enjoyed. 

96. In fact, in the pleading, the defence pleaded frustration.  It was not taken up in the written submissions and I consider that it is not a case of frustration, and apparently Mr Li did not pursue frustration at all. 

Conclusion

97. In the end, I consider that the PSPA could still be performed in the way suggested by JSM, and I therefore give judgment for the plaintiff as follows :

(1) a decree of specific performance be granted for the provisional agreement dated 31 October 2004 for the sale and purchase of the said premises by way of an Assignment in the forms suggested by JSM in their letter dated 24 March 2005 with such amendment as may be agreed by the parties concerned;

(2) both parties herein do confirm to JSM their agreement to the terms and conditions of the Assignment as stipulated by the developer and guarantor within 7 days hereof;

(4) the defendant shall execute all necessary documents as required by the developer, guarantor and the plaintiff within 14 days after :

(a) the developer has given their consent to the assignment of the defendant’s rights and obligations under the development agreement, and

(b) the defendant’s solicitors have received all necessary documents to be executed by the defendant.

98. The second thing is the question of damages and I would just say a little about it.  Mr Li has kindly referred me to a decision of the Court of Appeal which is binding on me.  That is the case of Born Chief Company (t/a Beijing Restaurant) v. Tsai George & Anor [1996] 2 HKC 282.  It is a nuisance case where the plaintiff alleged heavy rain causing flooding of the premises by rainwater entering from the defendant’s premises into the plaintiff’s premises.

99. The liability was adjudged in favour of the plaintiff against the defendant by Le Pichon J (as she then was).  She then ordered damages to be assessed by a master of the High Court.  On appeal, the appeal against liability was dismissed by the Court of Appeal.  However in respect of damages, the Court of Appeal decided that (from the Headnote) :

“(4)   The plaintiff had had about four years to prepare its case.  The only thing it had done in relation to damages was to have certain documents agreed as being accurate and authentic, but neither in the witness statements nor in the evidence was any attempt made to relate those documents to the damage.  Therefore, although it was plain from the evidence that there was significant physical damage, the plaintiff was not entitled to anything other than nominal damages.  It was not right for the judge to take upon herself to order damages to be assessed by a master, thus providing a further opportunity for proving damages to the plaintiff at the expenses and to the prejudice of the defendants.  It was incumbent upon the plaintiff to establish its claim at the trial and it must bear the consequence of its failure to do so.”

100. With due respect to the judgment delivered, I would like to point out one observation and that is the decisions of the Court of Appeal in three judgments delivered did not refer to any precedent in Hong Kong, or in the whole Commonwealth, to the effect that the judge should not order damages to be assessed by a master when there was no application or order for a split trial. 

101. I consider that the ratio of the case was that such a course taken by the judge would have the effect of providing a further opportunity for proving damages to the plaintiff at the expense and to the prejudice of the defendants.  This is a novel decision and, clearly, it is binding on me. 

102. When Mr Li cited this case, Mr Kwong, for the plaintiff, tried to distinguish the same and I am afraid the distinction mentioned by Mr Kwong was not inviting at all.  However, I noticed that the ratio was that the defendant should not be put to the expenses and to the prejudice of giving of a further hearing enabling the plaintiff to prove damages.

103. This does not happen in my case.  The parties spent one whole day yesterday and agreed on the fact that no witnesses should be called.  In fact, witnesses intended to be called would just give certain evidence which is either irrelevant or inadmissible. 

104. Not a word, of course, was said in respect of damages.  If I order damages to be assessed by a master or by me in a further hearing, it would not put the defendant to further expenses.  Secondly, there was no prejudice to the defendant.  In particular, after the submission, Mr Kwong, so belatedly and at the 11:59 hour, applied for a split trial. 

105. Mr Li obviously objected to such an application.  But I do not hear anything from Mr Li as to what prejudice the defendant would have suffered and what further expenses the defendant would have to pay for another hearing on the assessment of damages by a master. 

106. Should the plaintiff bring in all the evidence and also as to damages, then the trial will require two full days for the hearing of evidence, at least one further day in terms of costs.  But if I order damages to be assessed by a master, the same amount of money would have been spent by the defendant, so to my mind, there is no further expenses and prejudice to the defendant. 

107. Belated application as it was, I will allow the application and order a split trial should assessment of damages be required.  In other words, if I am wrong on the relief for specific performance, I would order that damages should be assessed by a Master for the breach of the PSPA in lieu of the specific performance.  But at this stage no such order is made since I consider the decree of specific performance is fit and proper.

108. In fact, the plaintiff asked for damages for breach of contract in addition to specific performance.  I have not heard any evidence that there are any damages in addition to specific performance, so I am not ordering damages for breach of contract in addition to specific performance. 

109. The further order is :

(5) all necessary accounts and inquiries be made for the execution of the decree of specific performance; (There may come a time that the parties dispute as to accounting and certain amounts when specific performance is executed, but I do not anticipate anything.  This is added by way of ex abundanti cautela only.)

(6) the Counterclaim of the defendant is dismissed;

(7) both parties shall have general liberty to apply for all matters arising and incidental to the judgment herein; and

(8) costs of the action and the counterclaim be to the plaintiff against the defendant, to be taxed if not agreed.

Stay of execution

110. There is an application by the defendant for a stay of execution of the judgment pending appeal.

111. The only consideration is if the defendant shall succeed in the appeal, then will it render the judgment of the Court of Appeal nugatory.  I think that is the only consideration. 

112. In reply to that the plaintiff gave an undertaking to this court.  In my view the undertaking from the plaintiff will be good enough and therefore I refuse the application for a stay of execution upon the undertaking given to the court and in a form acceptable to me in the formal order, and that is to the effect that the plaintiff will undertake to the court :

(1) not to dispose of all the properties to be conveyed by the defendant to the plaintiff, pursuant to the decree of specific performance, and without the consent of the defendant, the developer, and the leave of the court;

(2) to pay all expenses required to be paid by the defendant, first, in the performance of the decree of specific performance;

(3) to pay into court all receipts of moneys from the developer or (just again by way of ex abundanti cautela) whosoever in the performance of the decree of the specific performance and the development agreement within 7 days of the aforesaid receipts.

113. Mr Li submitted that Hongkong Land will not care and will insist on the assignments from Madam Cheung to the plaintiff’s limited company even if the Court of Appeal reserved my decision.  I could not see why Hongkong Land and HK Glory will not care at all, albeit they are not parties to this action. 

114. The evidence is JSM for the developer and the guarantor really care as to exactly what happened between the two persons and I cannot anticipate that a reputable company like Hongkong Land will not care about the court order when the Court of Appeal declared the agreement null and void but they will still insist that because my order is registered in the Lands Office to the effect that the plaintiff is now the owner.  There is no benefit to them at all in adopting such an attitude.

115. Accordingly, I cannot accept the reasoning given by Mr Li for the defendant should be a reason for allowing the application for stay of execution.  Instead I consider that the undertaking from the plaintiff would be good enough to refuse the application for stay of execution.  This application is therefore refused.