CHAN CHI HUNG and Another v. TSE YING PIU and Another

1994, No.M.P.3630

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

___________

________________

J U D G M E N T

________________

1. The plaintiffs are the purchasers and the defendants the vendors of Flat No.4, 12th Floor, Block D, Cheung Wo Court, Kowloon, Hong Kong ("the property") under a sale and purchase agreement dated 15 October 1994 and registered in the Land Office under memorial no.6174138 ("the Agreement"). Pursuant to the Agreement, a sum of $440,000, being 20% of the purchase price of $2.2 million, was paid. In the event, completion did not take place as agreed on or before 5:00 p.m. on 28 November 1994 or at all. By the originating summons herein, the plaintiffs claimed against the defendants for refund of the deposit of $440,000, damages in the sums of $22,000 and $44,000 being the commission paid by the plaintiffs to the estate agent and the stamp duty on the Agreement respectively. The plaintiffs also claimed damages in the form of legal costs for investigating title, interest and a lien over the property to the extent of the deposit.

2. The property was purchased by the 1st named defendant in 1984 from the Hong Kong Housing Authority under the Home Ownership Scheme. It was then assigned by the 1st named defendant to himself and his wife, the 2nd named defendant, as joint tenants by a deed of gift dated 15 October 1987. As with all sales of flats under the Scheme, the assignment dated 13 June 1984 from the Housing Authority to the defendants was made subject to the terms, covenants and conditions in the Schedule to the Housing Ordinance, Cap.283 and any amendments thereto. Pursuant to cl.1 of the Schedule, the purchaser cannot alienate, convey, charge or part with possession of the property, or attempt to do so, other than to the Housing Authority unless certain conditions were fulfilled. However, as the deed of gift was to the purchaser and his wife jointly, consent was sought from the Housing Authority to the assignment. By letter dated 19 June 1987, consent (valid for 3 months) was given by the Housing Authority for the assignment by way of deed of gift. By letter of 19 November 1987, validity period of the consent was extended until 19 January 1988.

3. The provisional agreement between the parties was entered into on 24 September 1994. Documents of title were delivered by the defendants' solicitors to the plaintiffs' solicitors under cover of letter dated 7 October 1994. By letter dated 14 October 1994, one day before execution of the Agreement, solicitors for the plaintiffs raised, inter alia, a requisition in the following terms :-

"3. In Assignment M/N 3542522, it is stated that a consent letter dated 19/6/1987 from the Hong Kong Housing Authority was granted to the Donor. Please let us have the original of the said letter together with the signed Memorial and registration fee for registration.

4. In recital item 5 of the Assignment M/N 2605473, it was stated that 'This Assignment is subject to the terms covenants and conditions..... mentioned in the Schedule to the Housing Ordinance (Cap.283) and any amendments thereof.' Please let us have evidence to show all the terms covenants and conditions specified in the Schedule to the Housing Ordinance (Cap.283) have been fullfiled (sic) and consent from Housing Authority have been obtained."

In reply, solicitors for the defendants said, by letter dated 17 October 1994, that :-

"3. Section 13(4) of the Conveyancing and Property Ordinance applies in that 'unless the contrary is proved, be sufficiently (sic) evidence of the truth of that recital, statement and description'. Hence, production of such consent letter is not necessary.

4. The matter raised by you is not a question of title and therefore that (sic) a property (sic) requisition. Therefore your request will not be entertained."

However, notwithstanding their above reply, solicitors for the defendants acceded to the plaintiffs' request by letter dated 24 November 1994 informing the plaintiffs that "we are instructed by our clients that the original consent letter has been lost by them. We will use our best endeavours to obtain the

certified copy of the same for your further handling." An uncertified photocopy of the consent letter dated 19 June 1987 was supplied by the defendants to the plaintiffs on 25 November 1994. By letters dated same date, plaintiffs further queried the position by pointing out that the deed of gift was executed outside the 3 month validity period of the consent, and requested for originals of the letter of consent and letter for extension of the consent to be supplied on or before completion. By letter dated 26 November 1994, solicitors for the defendants stated that they will only supply the plaintiffs with the certified copy of consent letter from the Housing Authority dated 19 June 1987 for plaintiffs' registration upon receipt of the same from solicitors for the Housing Authority. It was only on 28 November 1994, at about 3:00 p.m., 2 hours before time would expire for completion, that an uncertified copy of the letter of 19 November 1987 extending the consent was transmitted to the plaintiffs' solicitors by facsimile. No originals or certified copy of the letter of consent or letter extending the consent was ever tendered by the defendants by completion or at all. This is the first dispute.

4. The defendants requested by letter dated 23 November 1994 that the balance of the purchase price should be tendered by split cheques, $469,491 of which was to be made payable to the Housing Authority as premium for the sale. By the said letter of 25 November 1994, solicitors for the plaintiffs also reminded the defendants that under cl.41 of the Agreement the defendants "have to settle the premium and provide us with receipt of premium and confirmation letter from the Housing Authority confirming the removal of restriction against alienation of the property on or before completion." By the said reply letter of 26 November 1994, solicitors for the defendants agreed to tender the receipt of premium and confirmation letter from the Housing Authority upon receipt of the balance of purchase price. By letter dated 28 November 1994 (sent by fax and post), solicitors for the plaintiffs drew the defendants' attention to s.17B of the Housing Ordinance, reminding them that unless payment of the premium was made before the assignment the disposition of the property would be void. By the said letter of 28 November 1994, solicitors for the defendants replied alleging cl.41 "clearly stated that our client only agreed to settle the premium on or before the completion and will provide your client with the relevant receipt of the premium upon receipt thereof. In that case, our client is only obliged to let you have the relevant receipt upon our receipt of the same from the Hong Kong Housing Authority." No receipt was ever tendered to the plaintiffs' solicitors by completion or at all. This is the second dispute.

5. By their letter dated 25 November 1994, solicitors for the plaintiffs further raised a query relating to possible charge on the property by the Estate Duty Office for possible estate duty under s.6(1)(c) of the Estate Duty Ordinance in that the 1st named defendant had retained joint possession of the property with the 2nd named defendant at all times after the deed of gift. In reply, solicitors for the defendants relied on Ample Treasure Limited v. Eight Gain Investments Limited MP No.973 of 1992. In their letter of 28 November 1994, solicitors for the plaintiffs refused to accept that the authority quoted was applicable and stated that the requisition has not been answered. This is the third dispute.

Letter of Consent

6. Flats sold by the Housing Authority are governed by the provisions of the Housing Ordinance, Cap.283. Under the legislative scheme of the Ordinance, flats sold thereunder are not freely transferable by the owners. Section 17AA of the Ordinance provides that the terms and conditions stipulated in the Schedule to the Ordinance shall, upon notice being given in the Gazette, become part of the agreement and deed on a sale of flat under the scheme. Section 17B renders void any alienation or conveyance of such flats in breach of such terms and conditions. Furthermore, paragraph 5 of the assignment dated 13 June 1984 from the Housing Authority to the 1st named defendant recited that the assignment was subject to the terms, covenants and conditions of the Schedule.

7. Paragraph (1) of the Schedule provided that a flat owner shall not alienate, convey, charge or part with possession of the flat or enter into any agreement for such purposes unless, inter alia, 10 years have lapsed from the date of the purchase and a premium (calculated at a fixed formula) is first paid to the Housing Authority. However, the flat owner may, notwithstanding paragraph (1) enter into an agreement for the alienation of the flat without first paying the premium provided that it shall be "a condition of such agreement that the premium as assessed by the Director be paid to the Authority prior to assignment and within 28 days of the date of the agreement or within such other period as may be otherwise stipulated by the Director"(see paragraph (4) of the Schedule).

8. It is common ground that pursuant to the legislative restrictions, the property can only be transferred in 1987 by the deed of gift with the consent of the Housing Authority. In the deed of gift itself, by cl.7, it is stated that "This Deed of Gift is subject to the terms covenants and conditions mentioned in the Schedule to the Housing Ordinance (Cap.283) and any amendments thereto". The letters of 19 June 1987 and 19 November 1987 are vital documents evidencing the requisite consent and the conditions imposed on the said transfer of title. I have no doubt that such documents form part of the "proof of title" under s.13(1)(a) of the Conveyancing and Property Ordinance (Cap.219) in the transfer of the property by way of the deed of gift, without which there would be a blot and defect on the title. Pursuant to the said section, production of the said letters is required.

9. The said letter of consent is also a document referred to in the assignment dated 15 October 1987 between the defendants (paragraph 3 of the deed of gift) production of which is required pursuant to s.13(1)(b) of the Conveyancing and Property Ordinance.

10. The said statutory provisions are subject to any contrary intention expressed by the parties. Clause 6 of the Agreement provided that pursuant to s.13 of the said Ordinance the defendants shall "prove a good title to the said Premises at his own costs and expenses and at the like expenses shall make and furnish to the Purchase such certified copies of any deeds or documents of title wills and matters of public record as may be necessary to complete such title." I am satisfied that cl.6 is wholly consistent with the legislative scheme under s.13. The said letters are clearly "documents of title" that required to be produced to complete the title of the defendants, essentially that of the 2nd named defendant, to the property. In any event, by letter dated 26 November 1994, the defendants ultimately agreed to produce certified copy of the said letter of consent, albeit they said it would only be supplied upon receipt of the same from the solicitors of the Housing Authority. Evidently, the defendants' solicitors had finally, and correctly, conceded the importance of the said documents.

11. Both cl.6 and s.13(2) required production of a certified copy of the said letters. As at expiry of time for completion, the defendants only produced uncertified photocopy of the said letters. By reason of the defendants' said failure, they are in breach of clauses 6 and 7 in failing to show and prove a good title to the property by the time for completion.

Payment of Premium

12. It is the plaintiffs' case that the premium must be paid by the defendants to the Housing Authority before completion of the sale. It is their contention that otherwise the assignment of the property to them would be void pursuant to s.17B. The defendants' case is that though the premium was payable on or before completion, they are only obliged to provide the plaintiff with the receipt thereof upon receiving the same from the Housing Authority. The position is governed by cl.41 of the Agreement that provides :-

"41. The Vendor declares that premium may be payable to the Hong Kong Housing Authority prior to the deposition of the said Premises. The Vendor hereby warrants and undertakes to apply for the assessment of premium payable on the said Premises and undertakes to settle the same on or before completion hereof. The Vendor agrees to provide, (sic) the Purchaser with a letter from the Hong Kong Housing Authority dated not later than the completion date confirming the receipt of the premium paid and removal of the restriction against alienation of the said Premises upon receipt thereof."

13. It is beyond a peradventure that the premium must be paid on or before completion. By cl.41 the defendants agreed to provide the plaintiff with a confirmation letter dated latest 28 November 1994 from the Housing Authority, upon receipt thereof, verifying payment of the premium and removal of restriction on alienation. It may be open to argument that the confirming letter should only be provided to the plaintiff upon receipt thereof from the Housing Authority. There is, however, no room for argument that the obligation to pay need not be discharged on or before completion; or that the confirmation letter can be dated after 28 November 1994. It is clear from the defendants' request for split cheques, which was maintained until the time for completion, that it was the intention of the defendants to pay their premium to the Housing Authority from the purchase price to be obtained from the plaintiffs. There is no obligation for the plaintiffs, and the plaintiffs were not agreeable to do otherwise, to make payment for the balance of the purchase price any earlier than the time for completion. It is therefore virtually impossible for the defendants to have discharged payment for the premium on or before completion. Payment of the balance of purchase price and execution of assignment are, pursuant to cl.3 of the Agreement (as is normal practice), concurrent occurrences unless the purchaser consents to tender the cheques first and wait in the solicitors' office for the vendor to rush the cheque over to the Housing Authority or the government shroff's office to pay the premium before executing the assignment. If the purchaser insists, as the plaintiffs apparently did, in having payment of balance of purchase price and execution of assignment to take place concurrently (as he is entitled), the vendor would not be able to discharge his obligation to pay the premium on or prior to completion as required by paragraph (1) of the Schedule. The said condition prohibits alienation unless, inter alia, the defendants have "first paid to the Authority the amount of the premium". Execution of the assignment of the property before payment of premium would render the assignment void under s.17B of the Ordinance.

14. It would further appear that pursuant to paragraph (1) of the Schedule, any purported alienation or entry into agreement to alienate the flats without first paying the premium in the manner provided would also render the alienation void under s.17B; unless the agreement contained the condition as required under paragraph (4) of the Schedule. Clause 41, that dealt with the payment of premium to the Housing Authority, failed to contain the necessary condition stipulated under paragraph (4) of the Schedule. In the premises, it is not open to the vendors to rely on the exception provided in paragraph (4) of the Schedule to excuse their making of an agreement in breach of paragraph (1); i.e. without first paying the requisite premium. It would appear that once the vendors executed the Agreement (that failed to contain the necessary condition as stipulated by paragraph (4) of the Schedule) when the requisite premium was not paid at the material time, they were immediately in breach of the restrictions imposed by the Ordinance; rendering the Agreement null and void at its inception pursuant to s.17B of the Ordinance. However, this is not an issue the court was asked to adjudicate on in these proceedings.

Estate Duty

15. The requisition in respect of estate duty liability was first raised by letter dated 25 November 1994, i.e. nearly 2 months after the title deeds were delivered to the plaintiffs' solicitors for investigation. Pursuant to cl.8, requisitions must be delivered within 7 working days after receipt of relevant title deeds, and time is of essence in this respect. In the premises, this requisition was clearly out of time. Pursuant to cl.8(b), the plaintiffs would be deemed to have accepted the defendants' title in this respect. It is too late for the plaintiffs to raise for the first time such a requisition 3 days before completion.

16. Though I accept the plaintiffs' construction of the relevant provisions in the Estate Duty Ordinance and the consequential view that as the 1st named defendant remained in joint possession of the property after making it as a gift there would be a possible liability for estate duty if he happens to die within three years of the assignment to the plaintiffs; I fail to see how that can be construed as "a contingent incumbrance (sic) and the property would be subject to a latent charge according to Section 18 of the Estate Duty Ordinance" when the 1st named defendant was very much alive at the material time. He was still alive after the date for completion had expired and at the time when he made the affirmation herein in February 1995. The basis upon which the requisition was made wholly escapes me.

17. For reasons given above, I held the defendants to be in breach of the Agreement and ordered that the deposit of $440,000 be refunded to the plaintiffs. The plaintiffs were further to be reimbursed by the defendants the commissions they paid to the estate agent in the sum of $22,000. No order was made concerning the stamp duty as it is open to the plaintiffs to claim a refund of the same from the government. Damages representing costs for investigating title were awarded to the plaintiffs, to be assessed by a Master if not agreed. Interest on the sums of $440,000 and $22,000 and damages was to run at the judgment date from the date of the originating summons until payment. Costs were awarded to the plaintiffs.