XCHRX SMART INTERNATIONAL INDUSTRIAL LTD. v. TWINKLE STEP INVESTMENT LTD.

1997, No. A9883

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Background

1. On 12 June 1997, the defendant as vendor and the plaintiff as purchaser entered into an agreement of sale of a property described as House No. 85 10th Street, Hong Lok Yuen. The purchase price was $28,140,000 payable by an initial deposit of $50,000, a further deposit of $2,314,000 "Upon signing of the Formal Agreement for Sale and Purchase on or before" 23 June 1997, and the balance upon completion on or before 12 September 1997 at the vendor's solicitors. Upon completion, the vendor was bound to deliver vacant possession. In fact, the parties did not enter into a formal agreement, but the full deposit of $2,814,000 was paid.

2. On 12 September 1997, both parties were ready and willing to complete, but for one thing. The plaintiff wanted to inspect the property immediately prior to completion. The defendant would not allow this. The defendant then alleged that the plaintiff was in breach of the agreement and purported to determine it. The plaintiff accepted what it said was this wrongful repudiation and demanded return of the deposit, interest and compensation for stamp duty paid and the costs of investigating the title.

3. On 29 October 1997, the plaintiff commenced proceedings alleging a wrongful repudiation and seeking a declaration that the contract had been terminated by the plaintiff's acceptance of the defendant's wrongful repudiation, the return of the deposit of $2,814,000, damages for breach, including the stamp duty of $773,850, the agent's fee of $280,000 and the costs of investigating title and costs of suit.

4. In its defence, the defendant alleged that the plaintiff had wrongfully demanded that the defendant leave behind on the property an overhead projector system and screen and a electrically operated water closet system. The defendant denied that the plaintiff was entitled to inspect the property and agreed that it had declined the plaintiff's request to do so. The defendant says that the plaintiff wrongfully failed to complete and repudiated the contract. The defendant accepted this repudiation and forfeited the deposits. The defendant counterclaims for declarations and damages to be assessed.

5. In its reply, the plaintiff says that it was entitled to demand the projector and water closet systems, but this was not the effective cause of the plaintiff's refusal to complete.

6. On 17 February 1998, the defendant issued a summons under Orders 14A and 18 seeking orders that the plaintiff's action be dismissed and a sum of $4,124,564.10 stake-money held by the defendant's solicitors be released. Apparently, this money was paid to obtain discharge of the registration of the agreement. The affidavit filed in support of this summons said that only questions of law that arose for determination were -

1. whether or not, in the absence of any provision in the agreement, the plaintiff has any right to insist on inspecting the whole property prior to completion;

2. whether or not the plaintiff was entitled to revive a settled issue in relation to the household facilities by subsequently demanding the same as fixtures and transferable upon completion as a condition precedent to completion; and

3. even if the defendant had wrongfully refused to hand over the household facilities, whether the plaintiff can refuse to complete the transaction instead of completing the transaction first and then claim damages.

7. The plaintiff's response to this was to agree that questions 1 and 3 were suitable for determination under Order 14A, but that question 2 was not, being an issue of fact.

8. On 8 May 1998, the Master granted a declaration that the agreement had been terminated by the plaintiff's acceptance of the defendant's wrongful repudiation of it, that interlocutory judgment be entered for the plaintiff against the defendant for the sum of $2,814,000, plus interest, and for damages to be assessed.

9. The defendant now appeals against this judgment, asking for the Master's order to be set aside and that judgment be entered for the defendant as claimed in the summons.

10. The plaintiff also appeals, seeking, in place of the order that damages be assessed, judgment for $773,850, $280,000 and the costs of investigating title.

11. The plaintiff also alleges that the defendant's title may be defective because of the existence of illegal structures, and the plaintiff may seek leave to amend its statement of claim.

12. There is also another appeal by the plaintiff against an earlier order by the Master that the plaintiff pay the costs of a hearing on 17 March 1998. Counsel are agreed that the order here should be that the costs of that hearing be in the cause of the summons, without a certificate of counsel. I agree, and order accordingly.

The Right to Inspect

13. On 12 September 1997, the plaintiff's solicitors were maintaining in their first letter on that day that the plaintiff had a right "to inspect the property at least immediately prior to completion". In their third letter of that date, they said the plaintiff was ready, willing and able to complete "provided that our client was allowed to inspect the property prior to handing over the balance of the purchase price". It is on this basis that Mr Chain says that the plaintiff's final position was that it was entitled to inspect the property ON completion. (Mr Chain's emphasis.)

14. In making his submission on this point, Mr Chain places great reliance on Pang Chor Ying Annie v Lifton Investment Ltd [1993] 2 HKC 57. In that case, during the process of completion of the sale of some landed property and some furniture, the purchaser discovered that some furniture had been removed from the property. During this process of completion, the keys had been handed to the purchaser and payment of the purchase price had been tendered in accordance with the agreement. The money was, it appears, still within the control of the purchaser's solicitors because they were able to "recall" it. The purchaser's solicitors said that the purchaser was not prepared to complete while the vendor was in breach of the obligation to deliver the furniture. The Court of Appeal held that the purchaser was entitled to adopt this stance.

15. From this case, Mr Chain seeks to extract the principle that, if it is so that a purchaser is entitled to refuse to complete because the vendor does not tender delivery of what has been bought, it follows that the purchaser is entitled to inspect the property to ensure that what is being tendered is what was purchased.

16. I do not think that it is possible to find such a principle in Pang. In that case, the purchaser was able to rely on a breach of the vendor's obligation to deliver. It was because of this breach that the purchaser was not obliged to complete until the purchaser tendered full performance. The only relevant principle to be found in Pang is that a purchaser is not obliged to complete where the vendor is in breach of his obligations under the contract. The plaintiff can point to no such breach in this case. Or, at least, the plaintiff makes it clear in its reply that it did not rely on any such breach in refusing to complete. The only basis on which the plaintiff failed to complete was that the defendant refused to allow inspection of the property. That could justify the failure only if the defendant had an obligation under the contract to allow inspection.

17. Mr Chain does not attempt to argue his case on the basis that the defendant had a contractual obligation to allow inspection. He argues that Litton, JA (as he then was) Pang "did not proceed on the basis of any contractual entitlement". This is not right. Any reading of that case reveals that the Court of Appeal decided it on the basis that the vendor was in breach of the contractual obligation to deliver the furniture. Mr Chain seems to see the obligation to allow inspection as an integral part of the completion, independent of any contractual obligations, but, as I see it, the obligation must be contractual, or it does not exist at all.

18. I can understand, of course, why Mr Chain does not base his case on a contractual obligation. That is because he knows he cannot establish this. There is certainly no express term in the contract placing an obligation on defendant to allow inspection of the property as part of its obligation to complete. And it cannot be implied because it not necessary to do so to give business efficacy to the contract. One cannot even say that such an implied term would be reasonable and practicable. If one were to imply into a contract for the sale of land an obligation resting on the vendor to allow inspection of the property as part of the process of completion, there would be a revolutionary change to the system of conveyancing in Hong Kong. Presently, completion is done by exchanging documents, undertakings and money, usually by messenger, as was contemplated in this case Very few face-to-face completions happen. To imply the obligation sought by the plaintiff would mean, in effect, completion would have to take place face-to-face at the property concerned, or, at least, some complex system of communications would need to be put in place, with the purchaser or his agent at the property and his solicitor sitting opposite the vendor's solicitor waiting for the all clear and ready to hand over the money.

19. The fact of the matter is that, if a purchaser is not content to rely on a pre-contract inspection, which any sensible purchaser would undertake before agreeing to buy, he must stipulate expressly for some further post-contract inspection. The plaintiff in this case did not do that.

20. There was then, on my finding, no obligation on the defendant to allow the plaintiff to inspect the property before requiring the plaintiff to complete. The plaintiff, therefore, was wrong to refuse to complete. The plaintiff did, thereby, wrongfully repudiate, and the defendant was entitled, as it did, to accept that repudiation and determine the contract.

21. That finding settles the question between the parties. The questions regarding the "household facilities" do not arise because this is not an issue as the rights and wrongs of the determination of the contract. The plaintiff says quite clearly in its reply that this matter was not an effective cause of the plaintiff's refusal to complete. Indeed, the plaintiff does not raise this matter at all, and it is not necessary to determine the issue on the defendant's counterclaim.

22. The plaintiff's allegation that the defendant's title may be defective because of the existence of illegal structures, and that the plaintiff may seek leave to amend its statement of claim, is also not relevant. The contract has been determined. The only issue before the court is which of the parties wrongfully repudiated.

The Result

23. It follows from my finding that the plaintiff's appeal on the matter of quantum be dismissed. I so order.

24. As I have said, by its summons and notice of appeal, the defendant seeks only that the plaintiff's claim be dismissed and that the stake money be returned. It does not ask for judgment on its counterclaim. Accordingly, I set aside the Master's order and order that judgment be entered for the defendant in terms of paragraphs 1 and 2 of its summons of 17 February 1998.

The Costs

25. On the face of it, there seems to be no reason why costs should not follow the event. I make an order nisi that the plaintiff pay the defendant's costs of the plaintiff's claim, the defendant's application and the appeals, before me and the Master.

JK FINDLAY

Judge of the High Court
Court of First Instance