LAW HING CHO AND ANOTHER v. PARKER PROPERTIES LTD. AND OTHERS

HCMP 4331/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4331 OF 2001

____________

____________

_________________________

REASONS FOR DECISION

_________________________

Introduction

1. This is an application by the Plaintiffs for rectification of a number of documents relating to the sale and purchase of two units known as Shops 6A and 6C on the ground floor of Sunningdale Garden in Sheung Shui.

2. The 1st Plaintiff is the registered owner of Shop 6C of Sunningdale Garden and the 2nd Plaintiff is his tenant. He purchased Shop 6C in July 1992 from the developer, the 1st Defendant with vacant possession. Prior to signing the provisional sale and purchase agreement, he had been shown a brochure which identified the shop and had inspected the shop that he wished to purchase. At the time he was told that the 1st Defendant was awaiting approval from the Building Authority for the sub-division of Shops 1 to 6 into smaller units. On 6 August 1992, he signed the formal sale and purchase agreement. In due course, the sale and purchase was completed. The 1st Plaintiff was assigned Shop 6C by the 1st Defendant and led into possession of the unit which he was shown. The 1st Plaintiff executed a Sub-Deed of Mutual Covenant with the 1st Defendant. The formal sale and purchase agreement, the assignment and the Sub-Deed of Mutual Covenant were registered with the North New Territories Land Registry. Although there was a floor plan annexed to these documents, it was so small that the 1st Plaintiff did not discover that the unit he intended and agreed to buy was identified as "Shop 6A" on the floor plan and not "Shop 6C" as shown in the brochure. Thus, this unit which he agreed to buy and was given possession of is in fact Shop 6A. The 1st Plaintiff has locked up Shop 6A since acquisition until September 1996 when he rented it to the 2nd Plaintiff who operated a tyre shop there.

3. Two years later, on 24 October 1994, the 1st Defendant sold Shop 6A together with Shop 1A and 1B with vacant possession to President Office Furniture Limited ("President Office") which then sold the properties to Thaiwell International Investment Limited ("Thaiwell") on 3 November 1994. The sale and purchase agreements and assignments of these shops were duly registered with the Land Registry. The floor plans annexed to these documents were similar to those annexed to the 1st Plaintiff's assignment which identified the shop occupied by the 1st and 2nd Plaintiffs as Shop 6A.

4. Another three years later, on 3 September 1997, Thaiwell sold Shop 6A with vacant possession and Shops 1B, 2C, 4A and 4C to the 2nd Defendant. The sale and purchase agreements and assignments of these shops were also registered with the Land Registry. It is worth to note that at the time of the sale of Shop 6A with vacant possession to the 2nd Defendant, the 2nd Plaintiff was actually operating a tyre shop there and had done so for a year. It is also worth noting that since the 1st and 2nd Plaintiffs took possession of Shop 6A and until May 1998, there was no complaint of trespass of Shop 6A by any party against either of the Plaintiffs.

5. Then on 29 May 1998, the 2nd Defendant's solicitors wrote to the 2nd Plaintiff and informed it that the shop it occupied was Shop 6A belonging to the 2nd Defendant but mis-identified as Shop 6C on the site. They demanded the 2nd Plaintiff to vacate the premises. They then issued a writ of summons against the 2nd Plaintiff in High Court Action 19013 of 1998 for possession. In the course of preparation for that case, the 1st Plaintiff obtained a written confirmation from the 1st Defendant that there was a mistake in the floor plan and that "Shop 6C" as described in the sale and purchase agreement and assignment to the 1st Plaintiff should be "Shop 6A". It also confirmed that the shop that the 1st Defendant handed over to the 1st Plaintiff upon completion of the sale and purchase was "Shop 6C" as described in the brochure and "Shop 6A" as described in the floor plan.

6. Following that, the 3rd Defendant, to whom the 2nd Defendant had mortgaged Shop 6A, instituted mortgage action under High Court Miscellaneous Proceedings No. 4687 of 2000.

7. Hence, the 1st and 2nd Plaintiffs took out the present proceedings to seek rectification of the various documents. The 1st Defendant did not appear. The 2nd Defendant is in liquidation. The 3rd Defendant does not consent to the Plaintiffs' application, but in fact its position is neutral.

The applicable principles

8. The law on rectification has been succinctly stated in Chapter 43 of Snell's Equity, 30th ed at paragraphs 43-04 to 43-10. There are two conditions which must be satisfied before a plaintiff may pray in aid the jurisdiction of the court in equity to rectify a written document. Firstly, there must be a mistake sufficient to invoke the doctrine of rectification. There must be a prior agreement between the parties; this agreement was still effective when the instrument was executed; then by mistake the instrument fails to carry out that agreement and if rectified as claimed, the instrument would give effect to that agreement. Secondly, there must be an absence of alternative remedy.

9. Of course, the plaintiff bears the burden of proof. While the standard of proof is the usual civil standard of proof on a balance of probability, it must be such convincing proof as is appropriate in all the circumstances having regard to the nature and type of the document to be rectified. Thus to rectify a document which was registered and has become a document accessible to the public and in relation to which the doctrine of constructive notice applies, the court would require evidence of a higher degree of cogency than a private contractual document which affects only the rights of the parties inter se.

Mistake between 1st Plaintiff and 1st Defendant

10. According to the 1st Plaintiff's affirmation, he acted on the brochure and inspected the shop which he thought was Shop 6C and executed the documents. He was led into possession of the shop which, however, is Shop 6A according to the floor plan. The 1st and 2nd Plaintiffs' possession of the shop was never interfered with for six years until May 1998 when the 2nd Defendant's surveyor discovered the mistake. The Plaintiffs paid management fees to Colliers Jardine, which had management of Sunningdale Garden, presumably with the authority of the incorporated owners of Sunningdale Garden. Colliers Jardine recognised the Plaintiffs as having had the right to possession of Shop 6A which was mis-identified on site as Shop 6C. The 2nd Plaintiff paid decoration expenses and applied for electricity supply and Business Registration Certificate on the basis that the premises he occupied was Shop 6C. Since the mortgage action commenced by the 3rd Defendant, the 1st Defendant confirmed in its letter dated 2 July1999 that the true intention of the 1st Plaintiff and 1st Defendant was to sell and purchase Shop 6A as identified on the plan and acknowledged their mistake.

11. Mr Law on behalf of the 3rd Defendant helpfully pointed out that the letter allegedly written by the 1st Defendant is not written on the 1st Defendant's letter head and that the 1st Defendant did not appear at the hearing. Be that as it may, the brochure which was prepared by the 1st Defendant, the mis-identification on the site of Shop 6C, the acknowledgement by Colliers Jardine that the Plaintiffs are occupiers of the mis-identified Shop 6C and the Plaintiffs' undisturbed possession of the shop left me in no doubt that the 1st Plaintiff and the 1st Defendant had a prior agreement to sell and purchase the shop now occupied by the Plaintiffs namely Shop 6A instead of Shop 6C; that this agreement was still effective when the conveyancing documents were executed; that by their common mistake the documents failed to carry out that agreement and if rectified as claimed, the documents would give effect to their true agreement. I am satisfied that the Plaintiffs have discharged the burden of proving the mistake by convincing proof.

Mistake between 1st Defendant and 2nd Defendant and his predecessors

12. The above is only sufficient to dispose of the case as between the 1st Plaintiff and the 1st Defendant. However, the Plaintiffs' burden does not end there as a third party, i.e. the 2nd Defendant and its predecessors, President Office and Thaiwell, have acquired an interest over the same shop in the various transactions between October 1994 and September 1997. President Office and Thaiwell are not parties to these proceedings. That is unimportant as their interest over the shop had been extinguished with the re-sales. However, what was their belief and intention in their respective sales and purchases is material in so far as the rectification may affect the interest of the 2nd and 3rd Defendants.

13. Obviously in October 1994 when the 1st Defendant sold what it believed to be Shop 6A to President Office, it acted under the erroneous belief that it was Shop 6C as identified in the floor plan. There is no evidence from President Office or from Thaiwell what their belief and intention were in the subsequent sales and purchases. There is also no evidence from the 2nd Defendant as to its belief and intention either. The 3rd Defendant, in its position as mortgagee, is unable to provide any evidence as to that belief and intention either. I am therefore left to draw inferences from the facts that I am satisfied of.

14. At the time of all these subsequent sales, Shop 6A has either been locked up by the 1st Plaintiff or been occupied by the 2nd Plaintiff as a tyre shop. In either event, an inspection would have cast doubt on whether vacant possession of Shop 6A could be delivered by the respective vendors. On the other hand, as Shop 6A and Shop 6C had all along been mis-identified the other way round on site and as the 1st Defendant must have acted on the erroneous belief that it had already sold Shop 6C to the 1st Plaintiff, the only reasonable inference is that in the sale to President Office, the parties' intention was to sell and purchase Shop 6C and that was the shop the possession and keys of which were handed over to President Office. Likewise, as the subsequent sales and purchases were stated to be with vacant possession, the only reasonable inference is that the subject matter of these sales and purchases was Shop 6C and could not have been shop 6A which was being occupied by the 1st and 2nd Plaintiffs. Despite this is only a conclusion drawn on inferences, I am satisfied that the evidence is cogent and overwhelming that the inference is irresistible and compelling. I am satisfied that the common mistake between the 1st Plaintiff and 1st Defendant has permeated through the various intervening transactions to the sale and purchase transaction between Thaiwell and the 2nd Defendant. For these parties, their common intention which persisted throughout was the sale and purchase of Shop 6C as identified in the floor plan and Shop 6A as mis-identified on site. In my view, this mistake is sufficient to invoke the doctrine of rectification.

Alternative remedy

15. The mistake is an obvious one. There were intervening parties and property prices have changed dramatically throughout the years. Monetary remedy is neither adequate nor appropriate. The best remedy is to preserve the status quo which has all along been the intention of all the parties concerned. In view of the mistake over identification of the shops concerned, it cannot be corrected as a matter of construction without a decree of rectification.

Conclusion

16. For the above reasons, I am satisfied that the Plaintiffs have by convincing proof discharged the burden of proving a common mistake in all the relevant transactions concerning the sale and purchase of Shops 6A and 6C and that there are no alternative remedies available. Accordingly, I order rectification of the documents sought in the Plaintiffs' notice dated 28 January 2002.

17. Except for the 3rd Defendant, all parties and/or their solicitors are to blame for the mistakes. While I can well understand why the 3rd Defendant took the position as it did and am appreciative of the assistance given by its counsel, the 3rd Defendant is also bound by the 2nd Defendant's mistake and its consequence. In the circumstances, I consider it appropriate to make no order as to costs.