XCHRX SO KUNG KIT & TSANG LAI KWAN TANYA v. KO SIN KING WINNIE

HCA6201/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6201 OF 1997

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J U D G M E N T

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Background

1. I have before me two separate applications for judgment under O.86. The first application was taken out by the plaintiffs against the defendant on 25 February 1999. The second application was taken out by the defendant against the third parties on 16 July 1999. The defendant asked for leave to join the third parties at the hearing of the plaintiffs' summons of 25 February 1999 and further sought judgment against the third parties. By directions given by Master Cannon on 20 January 2000, the learned master ordered that the defendant's summons be heard immediately after the plaintiffs' summons. The facts giving rise to the two Summonses are set out hereunder.

2. By a written agreement ("the Principal Agreement") dated 4 March 1997 between the third parties as vendors and the defendant as purchaser, the third parties agreed to sell to the defendant Flat B, 26/F, Block 2, Finery Park, Tseung Kwan O ("the Property") on the following terms and conditions. The price for the Property was $3,630,000 (Clause 2 and Part IV of the First Schedule). The third parties were to "give and show a good title to the Property at [their] own expense in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap. 219)" (Clause 9(a)). Any requisition in respect of the title was to be delivered to the third parties' solicitors "within seven (7) working days after receipt of the title deeds and documents by the [Defendant's] solicitors..." and if the title deeds "shall not have been delivered to the [Defendant's] solicitors seven (7) working days before the date of completion, either party may by giving notice to the other party postpone the date of completion to a date upon the expiration of seven (7) working days from the date of receipt of such title deeds by the [Defendant's] solicitors" (Clause 10(a)). The sale and purchase was to be completed on 15 May 1997 between the hours of 9 a.m. and 5 p.m. at the office of the third parties' solicitors (Clause 3(a) and Part VI of the First Schedule). Time was of the essence of the Principal Agreement (Clause 15). Pursuant to the provisions of the Principal Agreement, the defendant paid the third parties $363,000 by way of deposit and part payment of the purchase price.

3. By a provisional agreement dated 6 March 1997, the defendant subsold the Property to the plaintiffs. A formal sub-sale agreement ("the Sub-Sale Agreement") was entered into between those parties on 20 March 1997. It provided for sale of the Property by the defendant "as confirmor" to the plaintiffs for $4,080,000 (Clauses 1 & 2 and Schedule 5). Any requisition in respect of the title was to be "delivered in writing to [the Defendant] within 7 working days after the date of receipt of the title deeds in relation to the Property by [the Plaintiffs'] Solicitors" (Clause 8). The sale was to be completed on 15 May 1997 before 12 noon at the office of the defendant's solicitors "or as they may direct" (Clause 3 and Schedule 6). Time was of the essence of this Sub-Sale Agreement. The Sub-Sale Agreement provided by Clause 14 as follows :

"14. (1) [The Defendant] hereby agrees and undertakes with [the Plaintiffs] that [the Defendant] will duly perform and observe all the terms and conditions contained in the Principal Agreement.

(2) In the event of [the Defendant] becoming entitled to exercise any right of rescission under the Principal Agreement [the Defendant] shall, within 7 days after [the Defendant] becomes aware of the existence of such right, notify [the Plaintiffs] in writing of such right, and [the Plaintiffs] shall within 7 days after the receipt of such notification by [the Defendant] direct [the Defendant] in writing either to exercise such right of rescission or to refrain from exercising such right and [the Defendant] shall act in accordance with [the Plaintiffs'] direction. [The Defendant] shall not exercise any right of rescission under the Principal Agreement except in accordance with the direction given by [the Plaintiffs] unless [the Plaintiffs] shall fail to give any direction to [the Defendant] under this clause in which event, [the Defendant] shall be entitled to exercise or to refrain from exercising such right of rescission as [the Defendant] may think fit.

(3) ...

(4) In the event of [the Defendant] exercising any right of rescission under the Principal Agreement, then ... this Sub-Sale Agreement shall be rescinded and [the Defendant] shall repay to [the Plaintiffs] all deposits or such part of the Purchase Price as shall have been paid by [the Plaintiffs] hereunder."

Pursuant to these provisions of the Sub-Sale Agreement, the plaintiffs paid the defendant deposits in the sum of $408,000.

4. The parties were, at the material times, represented by various firms of solicitors. The identity of these firms are not relevant. For ease of exposition, no separate reference will be made to them.

5. The defendant received various title deeds from the third parties on 4 April 1997. By letter dated 6 April 1997, the defendant requisitioned for a certified copy of a power of attorney in support of the execution of an assignment which formed part of the title to the Property. The defendant sent the title deeds to the plaintiffs on 8 April 1997. By letter of the same day, the plaintiffs raised various requisitions including a like requisition in respect of the power of attorney.

6. By letter dated 12 May 1997, the plaintiffs sent to the defendant a draft assignment for her approval. The plaintiffs also pressed the defendant for a reply to their requisitions and asked the defendant to "Please note that if your reply to our requisitions (if any) does not reach us on time to enable us to approve title, completion will not be able to take place on schedule". The defendant in turn sent this draft assignment on 13 May 1997 to the third parties for their approval.

7. On 14 May 1997, the third parties approved the draft assignment at 15:09. In their original Defence dated 24 September 1997, they alleged that a copy of the relevant power of attorney dated 28 November 1994 was faxed to the defendant at 15:30. At 16:18, the plaintiffs pointed out to the defendant that she had not satisfactorily proved her title to the Property and that "the completion date shall be postponed to a date at least 2 working days after acceptance of your ... title to the property by us". The defendant was asked to confirm this arrangement by 17:00. Prior to 18:34, the defendant sent two letters to the third parties giving them notice to postpone the date of completion to at least two working days after the acceptance of the third parties' title. According to the defendant, it was at 18:34 that she received from the third parties a copy of the relevant power of attorney. She in turn sent this to the plaintiffs at 18:49.

8. On 15 May 1997, the defendant refaxed to the plaintiffs the copy power of attorney at 10:15. She also approved the draft assignment at 11:25. There was, however, no completion between the plaintiffs and the defendant by 12:00. According to the third parties' original Defence of 24 September 1997, the third parties allegedly delivered by hand to the defendant a certified copy of the relevant power of attorney at 15:00. At 15:29, the defendant sent to the plaintiffs her solicitors' undertaking to send the certified copy of the relevant power of attorney upon receiving the same from the third parties. From that point onwards, matters took a turn for the worse. At 15:52, the third parties alleged for the first time against the defendant that a copy of the relevant power of attorney was faxed to her at 15:30 on 14 May and the third parties insisted on completion at 17:00 that day. There was no completion between the defendant and the third parties at 17:00. At 18:09, the defendant advised the plaintiffs on the manner whereby the purchase price was to be split on completion. It is the plaintiffs' case that the defendant's solicitors verbally confirmed postponement of the date of completion to 16 May sometime after 18:45. In the presence of Kwan Lee Lin of the third parties and Tomly Yuen (the estate agent), the plaintiffs inspected the Property at 20:00. The defendant denied that she took any part in arranging this inspection.

9. The plaintiffs sent to the defendant the balance of the purchase price in the sum of $3,672,000 on 16 May 1997. The defendant in turn tendered the balance of the purchase price due under the Principal Agreement to the third parties who refused the same. The third parties asserted that the Principal Agreement should have been completed on 15 May. They forfeited the defendant's deposit. This in turn led to the defendant's forfeiture of the plaintiffs' deposit on the same basis.

The original pleadings between the parties

10. The plaintiffs issued the writ in this action on 11 June 1997. The plaintiffs averred that the defendant "has not given and proved a good title to the Property" and that the defendant and the plaintiffs had agreed to postpone completion to 16 May 1997. The plaintiffs claimed specific performance of the Sub-Sale Agreement and damages in lieu or in addition to specific performance. In her Defence dated 7 July 1997, the defendant pointed out that she was selling as confirmor and that the third parties had failed to produce the relevant power of attorney. She denied there was any agreement to postpone completion to 16 May 1997. She asserted that she was entitled to forfeit the deposit due to the plaintiffs' failure to complete at 12 noon on 15 May 1997.

11. By her Statement of Claim against the third parties dated 28 July 1997, the defendant asserted against the third parties that they "failed to produce to the defendant or her solicitors the original or a certified or attested copy of the Power of Attorney in the result that the [Third Parties] as Vendor has not given and proved a good title to the Property in accordance with clause 9 of the Principal Agreement". She asserted that there was an implied agreement to postpone completion to 16 May 1997. She claimed specific performance of the Principal Agreement or damages in lieu or in addition to specific performance. By their original Defence dated 24 September 1997, the third parties asserted that they had complied with all the requisitions by 15:00 on 15 May 1997; there was no agreement to postpone completion to 16 May 1997 and that they were entitled to forfeit the deposits of the defendant due to her failure to complete on 15 May 1997.

The change of stance

12. By an "Open Letter" dated 4 November 1997, the third parties informed the defendant that they were willing to withdraw their Defence and Counterclaim and to submit to judgment for specific performance and damages (if any). They called upon the defendant to complete the purchase "within 14 days from the date hereof or such reasonable time as proposed by you". By notice dated 1 December 1997, the third parties wholly withdrew their Defence and Counterclaim of 24 September 1997. By letter dated 27 December 1997, the third parties demanded that the assignment and the balance of the purchase price be delivered by the defendant on 5 January 1997. By further letter dated 7 January 1998, the third parties pointed out that the complete lack of response on the part of the defendant "towards completion of the transaction is a repudiation of the agreement" and they proceeded to accept the defendant's repudiation. On the same day, the defendant took out two summonses, one for determination whether the third parties were entitled to discontinue their Counterclaim and the other for judgment for damages for breach of the Principal Agreement in lieu of specific performance to be assessed and for an order for the return of the deposit of $363,000. The third parties countered by a summons dated 15 January 1998 for leave to file a fresh Defence and Counterclaim. Master Jones acceded to the summons of the third parties.

13. By letter dated 26 January 1998, the plaintiffs notified the defendant that they had decided to accept the defendant's wrongful repudiation and they "will relinquish the claim for specific performance and to elect to sue for damages in lieu thereof".

The existing issues between the plaintiffs and the defendant

14. By their Re-Amended Statement of Claim dated 11 March 1999, the plaintiffs claim a declaration that the defendant had wrongfully repudiated the Sub-Sale Agreement; return of their deposits in the sum of $408,000; payment of $112,200 (stamp duty) and $40,800 (estate agent commission) and costs of investigating title of the Property.

15. The defendant says that her duty as confirmor was merely to facilitate the conveyance from the third parties to the plaintiffs and it was the wrongful conduct of the third parties that prevented her from performing her obligation under the Sub-Sale Agreement. She places reliance on the change of stance on the part of the third parties. The defendant further maintains that there was no agreement to postpone completion to 16 May 1997 and that the plaintiffs had chosen not to direct her to rescind the Principal Agreement pursuant to Clause 14 of the Sub-Sale Agreement.

The existing issues between the defendant and the third parties

16. By her Amended Statement of Claim dated 1 June 1999, the defendant avers that the date for completion of the Principal Agreement was postponed to 16 May 1997 as a result of the inspection of the Property on 15 May 1997 or alternatively was validly postponed pursuant to clause 10(a). The defendant further avers that the third parties acted in repudiatory breach in refusing to accept the tender on 16 May 1997. The defendant now claims a declaration that the third parties had wrongfully repudiated the Principal Agreement; return of the deposits in the sum of $363,000 and an indemnity in respect of the claims of the plaintiffs.

17. According to the Fresh Defence and Amended Counterclaim of the third parties dated 10 February 1998, the third parties admitted paragraphs 3 to 24 of the defendant's Statement of Claim of 20 August 1997. This entails the following material admissions :

(a) the third parties were well aware that the defendant had sub-sold the Property to the plaintiff (Para.22);

(b) the third parties had impliedly agreed to postpone the date of completion to 16 May 1997 (Para.23); and

(c) the third parties had wrongfully and in breach of the Principal Agreement forfeited the deposit of $363,000 (Para.21).

18. The third parties now contend that it was the defendant who had wrongfully repudiated the Principal Agreement and they place reliance on their letter of 7 January 1998 purporting to accept the defendant's repudiation. They aver that "had the Defendant taken up the proposal of the [Third Parties] to complete the transaction as aforesaid, the original or certified copy of the Power of Attorney would be supplied by the [Third Parties] on completion".

The hearings before me

19. The plaintiffs' summons was listed before me to commence at 10 a.m. on 31 July 2000. Mr Vincent Chun ("Mr Chun") appeared on behalf of the plaintiffs. The defendant did not appear at the hearing. I reserved my decision after Mr Chun concluded his argument.

20. The defendant's summons was listed to commence at 2.30 p.m. Mr Jesse Kwok ("Mr Kwok") appeared on behalf of the third parties. The defendant again did not appear to support her application.

21. As the defendant is seeking an indemnity from the third parties' in respect of the plaintiffs' claims, the third parties are obviously interested in the plaintiffs' claims against the defendant. I therefore invited Mr Chun to return to court to deal with any relevant submission from Mr Kwok. In so doing, I have not lost sight of the fact that the two applications are separate which seems to be the foundation of the directions given by Master Cannon on 20 January 2000.

The plaintiffs' application against the defendant

22. The first line of defence of the defendant is that, as confirmor, she has no obligation to the plaintiffs to show and prove good title. This is wholly contrary to the express provisions of Clause 7 of the Sub-Sale Agreement which provided that "The [Defendant] shall give prove and show a good title to the Property at his own expense in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap. 219) and he shall at the like expense make and furnish to the [Plaintiffs] such attested or certified copies of any deeds or documents of title ... as may be necessary to complete such title". Godfrey J (as he then was) in Yuen Kong Ling Cana v. Lai Kam Hon [1993] 2 HKC 728 at 730A clearly pointed out that in the absence of any term qualifying the extent of a confirmor's obligation, those obligations are absolute. "The default of the original vendor will afford the original purchaser no defence to the sub-purchaser's claim for damages."

23. The nature of the vendor's obligation to show a good title is clearly set out in the judgment of Litton JA (as he then was) in Active Keen Industries Ltd v. Fok Chi-keong [1994] 1 HKLR 396 at 405/35. His Lordship said this :

"... there is an obligation on the vendor to show a good title. This obligation arises by necessary implication from the contract itself. This accords with common-sense. Were the law otherwise, the purchaser might be left in the position of having to complete or not. It follows that this obligation falling on the vendor to properly answer requisitions and inquiries, if reasonably raised by the purchaser, must be discharged within a reasonable time, to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed."

24. The undertaking of the defendant's solicitor to produce the certified copy of the relevant power of attorney was given after the time for completion under the Sub-Sale Agreement. By that stage the defendant was in obvious breach of her obligation to show a good title and to complete by 12:00 on 15 May 1997. There was no breach on the part of the plaintiffs as would justify the defendant's purported forfeiture of the plaintiffs' deposits.

25. I accept the submissions of Mr Chun that Clause 14 of the Sub-Sale Agreement is of no relevance to this case as there was no notification by the defendant to the plaintiffs of any right of rescission under the Principal Agreement. Even if applicable, that clause does not provide any defence to the plaintiffs' claim for repayment of all deposits.

26. For these reasons, I am of the view that the defendant has no defence to the plaintiffs' application under O.86. I make an order in terms of the minutes annexed to the plaintiffs' summons dated 25 February 1999. I certify that this matter is fit for counsel.

The defendant's application against the third parties

27. As pointed out above, the defendant is seeking refund of her deposits and an indemnity in respect of the plaintiffs' claim.

28. In relation to the latter, given the clear admissions of the third parties, I find it difficult to see what defence they have against that claim. The relevant principle is to be found in Chitty on Contracts, Vol.1, General Principles Para.25-009 :

" Where the innocent party, being entitled to treat himself as discharged by the other's breach, nevertheless elects to affirm the continued existence of the contract, he does not thereby necessarily relinquish his claim for damages for any loss sustained by the breach."

29. The defendant's claim for an indemnity stems from the third parties' admitted breach on 15 May 1997. That right for damages is not curtailed by the subsequent history of the Principal Contract. The third parties clearly have no defence to this part of the defendant's claim.

30. As far as the defendant's claim for refund of her deposits from the third parties is concerned, this depends on whether the third parties were entitled to rescind on 7 January 1998. This in turn hinges on whether the third parties were ready, willing and able to complete their sale. The whole dispute arose as a result of their failure to tender a certified copy of the relevant power of attorney. Paragraph 7 of their Fresh Defence and Amended Counterclaim generates little confidence in this regard. However, the evidence on this issue is unsatisfactory. I am left in doubt as to whether a certified copy of the relevant power of attorney was sent by the third parties to the defendant on 15 May 1999. I am also uncertain as to the full circumstances surrounding the events on 7 January 1998. It would therefore not be right for me to enter judgment against the third parties in respect of the remaining claims of the defendant.

31. For these reasons, I order that the third parties do indemnify the defendant against any claim for damages by the plaintiffs arising from the third parties' breach of the Principal Agreement on 15 May 1997. Save as aforesaid, the third parties do have unconditional leave to defend the other claims of the defendant.

32. I make an order nisi that the defendant do, as against the third parties, have half of the costs of her application to be taxed, if not agreed. The other half of the costs of her application be costs in the cause.