CONCORD PROPERTY DEVELOPMENT LTD v. LI PUI LEUNG AND ANOTHER

HCA7923/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7923 OF 2000

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J U D G M E N T

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1. The plaintiff applied for summary judgment under Order 86 to strike out the defendant’s Defence and Counterclaim under Order 18 rule 19 of the rules of the High Court.  I allowed the applications.  I now give reasons.

2. The plaintiff is the developer of a development at Sha Tin known as Vista Paradiso (“the Development”).  It was given the consent to sell the uncompleted units there by the Director of Lands on 25 June 1997.  On 6 October 1997, the parties entered into a provisional contract by which the plaintiff agreed to sell and the defendants agreed to buy Flat F on the L26 Floor of Tower 10 (“the Flat”) and Car Parking Space No.366 on the B2 Floor (collectively “the Property”) at a price of $11,034,000.  The Property is at Phase 1 of the Development. 

3. Cheung Kong Real Estate Agency Limited (“Cheung Kong”) signed the Provisional Contract as the sale agent for the plaintiff.  Messrs Leo K.W. Lok & Co. (“LL”) represented Ds in the purchase since 7 October 1997 and the plaintiff was represented by Messrs Woo Kwan Lee & Lo (“WKLL”).

4. The formal Agreement for the sale and purchase of the Property (“the Agreement”) is dated 21 October 1997.  Pursuant to Schedule 4 thereof the defendants paid the plaintiffs 10% of the purchase price i.e. $1,103,400 as deposit and another two partial payments in the respective sums of $1,103,400 each.

5. The building covenant period for the Development expired on 31 March 1998.  The plaintiff applied for extension of time and the same was granted by the District Lands Office on 4 November 1997 without requiring any payment of premium, until 31 December 1998.

6. Gary Lim, the designated Authorized Person (“AP”) under the Sale and Purchase Agreementissued a certificate dated 17 June 1998 for extension of time for completion of Phase 1 of the Development for 83 days i.e. until 21 September 1998.  WKLL on behalf of the plaintiff on 26 June 1998 wrote to the defendants and their solicitors, LL to advise them of the certificate of extension.  Also on 26 June 1998 the occupation permit of Phase 1 was issued. 

7. The AP issued a certificate of completion dated 29 June 1998 certifying that Phase 1 of the development had been completed.  WKLL on behalf of the plaintiff applied to the Director of Lands for consent to assign and this consent was issued on 30 September 1998.  In the meantime, on 7 August 1998, the plaintiff informed the defendants about the extension of the building covenant period, the issue of the occupation permit and the application for consent to assign.

8. Then on 18 September 1998, the plaintiff informed the defendants that it had already obtained the occupation permit and had applied for consent to assign and for extension of the building covenant period.  The consent to assign for Phase 1 came to be issued on 30 September 1998.

9. There was a further extension of the building covenant period to 31 March 1999, on payment of a premium by the plaintiff, presumably for completion of Phase 2. 

10. By a letter dated 24 October 1998 from WKLL to the defendants and LL, the defendants were given notice to complete the purchase.  Pursuant to Clause 5 and Schedule 4 of the sale and purchase agreement and the notice of completion, the defendants were required to complete the purchase on or before 7 November 1998.  But they did not.  On 19 November 1998 WKLL sent a letter demanding that they complete the purchase of the Property within 21 days from the date of service of the letters but the demand was not met.  The plaintiff then sent out determination notices dated 31 December 1998 to determine the sale and purchase agreement.

11. The plaintiff subsequently sold the flat for $5,227,000 and the car park for $150,000 in early 1999.  Through solicitors the plaintiff demanded payment of loss and damage on 18 September 1999.  The writ herein was issued on 5 May 2000. 

12. The plaintiff’s case is that by Clause 3(1) and Schedule 4 of the Agreement, the balance of the price was payable within 14 days of the plaintiff’s written notice that it was in a position validly to assign the Property.  Pursuant to Clause 5(2) of the Agreement, it gave such notice on 24 October 1998.  The defendants failed to pay the balance within 14 days.  The plaintiff on 19 November 1998 issued a further notice to complete pursuant to Clause 16(1).  The defendants still failed to complete.  The plaintiff exercised its right to determine the agreement and issued a Determination Notice on 31 December 1998.  The plaintiff is entitled to forfeit the deposit under Clause 16(2) and to resell the property under Clause 16(3), with any deficiency in price as well as expenses of the sale to be made good by the defendants.  The plaintiff resold the property and is now entitled to the various reliefs claimed. 

13. There is no dispute that the defendants failed to complete.  Indeed, in their Defence and Counterclaim they pleaded that they had been unable to raise finance for the purchase as a result of the downturn in the property market.  However their defence is as follows :

(1)	The defendants were required under Clause 4(1)(c) of the Agreement to complete the buildings comprised in the Development by 30 June 1998, subject to such extensions of time as may be granted by the AP under Clause 4(5)(a).  The defendants failed to complete the Development in time.  It was not completed until early 1999.
(2)	The defendants received no notice of extension of time for completion granted by the AP.  If such extension was granted, the defendants say that it is invalid.
(3)	By reason of the plaintiff’s failure to complete the Development by 30 June 1998 and because of the downturn in the market, the defendants were unable to finance the purchase.
(4)	The defendants did not complete the transaction in response to the letters dated 24 October and 19 November 1998 and they did not rescind the Agreement because in October 1998 the plaintiff through its agent misrepresented to the defendants that in the worst case scenario they would forfeit no more than 30% of the purchase price and the plaintiff would not claim for the deficiency and expenses on resale.
(5)	The forfeiture clause which provides for forfeiture of the 10% deposit is a penalty clause and therefore unenforceable.

14. Counsel for the defendant in written submissions raised the question of delay by the plaintiff in bringing the Order 86 proceedings, but did not pursue that point in argument.  Nor did he seriously pursue the question of whether the forfeiture clause was a penalty clause.  I think he was right not to pursue the point.  This is a standard sale and purchase agreement prescribed for the consent scheme which has been used for a long time and the validity of the forfeiture clause has been settled.  See Sihombing and Wilkinson, Hong Kong Conveyancing Law and Practice, Vol VIII [2103] et seq. and the cases there cited.

15. The principles which apply in applications under Order 14 apply also under Order 86.  The threshold onus is on the defendants to show that there is a triable issue.  The court will test the credibility of an affidavit asserting a triable issue in the context of so much of the background as either undisputed or beyond reasonable dispute : Re Safe Rich Industries Limited [1994] HKLY 183.

16. The plaintiff’s application under Order 18 rule 19 is made on the basis that the Defence and Counterclaim discloses no reasonable ground of defence or cause of action, and/or is frivolous and vexatious and/or otherwise an abuse of process.  The test here is whether the defence put forward is plainly and obviously unsustainable.

The plaintiff’s alleged failure to complete

17. The defendant pleads that Clause 4(1)(c) of the Agreement requires the plaintiff to complete the buildings comprised in the Development on or before 30 June 1998 subject to such extensions of time as may be granted by the AP in accordance with Clause 4(5)(c).  Any such extension had to be notified to the defendants within 14 days.  No certificate of extension was received by the defendants.  On 30 June 1998 the plaintiff failed to complete the Development in accordance with Clause 4(1)(c).  The Development was completed in early 1999.

18. Clause 1 of the Agreement is the definitions clause.  The following definitions are relevant :

“(b) ‘Buildings’ means the building or buildings comprised in Phase 1 of the Development of which the Property forms part.

(g) ‘Development’ is means the residential development … intended to be known as ‘Vista Paradiso’.”

19. What Clause 4(1)(c) required was that the plaintiff complete the Buildings, i.e. Phase 1, before 30 June 1998.  It did not have to complete the whole Development.  To the extent that the defendants plead that the plaintiff had to complete the whole Development, that pleading is simply wrong.  Further the evidence of the 1^st defendant that the Development was not completed until early 1999 is simply irrelevant.  

20. As to completion, Clause 4(6) provides that the vendor must within 14 days of having completed the Buildings apply to the Director of Lands for consent to assign.  Clause 4(7) provides :

“For the purpose of this clause the issue of a Certificate of Compliance or consent to assign by the Director of Lands shall be conclusive evidence that the Buildings have been completed or are deemed to be completed as the case may be and nothing in this sub-clause shall preclude the Vendor from proving that it has complied with sub-clause (1)(c) above by any other means.”

Clause 5(1) of the Agreement then goes on to provide :

“The Vendor shall notify the Purchaser in writing that he is in a position validly to assign the Property within one month of the issue of the Certificate of Compliance or the consent of the Director of Lands to assign, whichever shall first happen.”

21. As I have noted above, this was done on 24 October 1998; and the defendants were then required to complete the purchase on or before 7 November 1998.  The Certificate of Compliance is that which relates to the fulfilment of the vendor’s positive obligations under the Government Grant, i.e. completion of the Development and is not relevant here.

22. The defendants argue that there is a triable issue as to completion.  The conclusive evidence of completion, i.e. the consent to assign, did not come until 30 September 1998, i.e. 92 days after 30 June 1998.  The AP on 17 June 1998 certified an extension of time of 83 days by reason of delay caused by inclement weather; this would only provide for extension up to 21 September.  In any event, the defendants deny receiving notice of the extension, and there is a further issue as to whether the extension is valid; and the AP is not impartial.  While the AP issued a certificate of completion dated 29 June 1998 certifying that Phase 1 of the development had been completed the fact that he had, so shortly before, issued the certificate of extension calls into question the accuracy of the certificate of completion.  In any event the occupation permit issued on 26 June does not mean that the Property was fit for habitation, only that the building requirements had been complied with. 

23. I do not see that there is anything in the point that the AP is not impartial.  Of course he is employed by the developer, but he is named in the Agreement and the parties are bound by his certificate.  In Tsang Man Chung v. Kar Ho Development Co. Ltd,HCA 84534 of 1999, Chung J summarised the bases for challenging an extension of time as that the extension was not given by the person authorised to give it; or that the authorised person gave the extension in bad faith; or that he did not purport to exercise the power conferred on him to extend time.  So far as I can see there is no basis to challenge the AP’s certificate of extension here.

24. As to whether the defendants had no notice of the extension, given that such notice was sent directly to them as well as their solicitors, this is incredible when seen against the background facts, namely that the solicitors concerned continued to liaise over the transaction after 30 June 1998, raising no question on the apparent expiry of the contractual date for completion.

25. Completion is a question of fact.  Clause 4(7) does not preclude proof by other means than the consent to assign.  This is also the view taken by the Lands Department in its Legal Advisory and Conveyancing Office Circular Memorandum No. 7C of 16 January 1995. 

26. The certificate of completion is prima facie proof of completion.  Application was made on the basis of that certificate for the consent to assign.  While the Lands Department then took three months to issue the consent, there is nothing in that fact to suggest that the certificate had been issued prematurely; bureaucracy takes its time.  There is no evidence to contradict the certificate of completion and I think it must be accepted as accurate.  I cannot see that there is any triable issue as to whether Phase 1 was completed by 30 June 1998.

Misrepresentation

27. The defendants allege that they are entitled not to complete because of a representation made by one Mr Chi of Cheung Kong in October 1998 that the plaintiff would only forfeit 30% of the purchase price and would not claim against the defendants for any deficiency or expenses in any subsequent resale.  The 1^st defendant also affirms that Mr Chi “told me that the development of buildings would take some time to complete and persuaded me to try my best to finance the purchase”.

28. It must be noted that this representation appears for the first time in the Defence and Counterclaim.  Nothing appears in any correspondence between the parties’ solicitors after October 1998, be it when the determination notices were issued, or when, following the resale, the plaintiff’s solicitors demanded payment of loss and damages.  This suggests that the allegation is incredible.  So also does the fact that, by October 1998, the consent to assign having been issued, any agent would have been in a position to say that Phase 1 was completed.

29. A further problem is that, although Cheung Kong was the sales agent for the property, there is no suggestion that its authority went further than to act as such.  There is no evidence that it had actual or ostensible authority to represent the plaintiff on matters governing the performance of the sale and purchase agreement.  By the time of the alleged representation, it was the solicitors WKLL who represented the plaintiff in all dealings concerning the conduct of the transaction and, although of the defendant may have continued in contact with Chung Kong there is no real basis to suggest that the plaintiff had held out Cheung Kong to have the apparent or ostensible authority to represent it in matters concerning the performance of the agreement.

30. Another problem is that the alleged representation defies commercial sense.  It would be a remarkably charitable developer that would not seek its full pound of flesh from a defaulting purchase.

31. However the most important and fundamental difficulty with this defence comes from the fact that, even if the plaintiff did not complete the buildings by 30 June 1998 and the AP’s certificate of extension was invalid, the defendants did not exercise the right to rescind in time.  The right is provided for by Clauses 4(4) of the Agreement.  In brief, if the vendor does not complete the Buildings by the date specified in sub-clause (1), with any extension granted by the AP, the purchaser has the right to rescind and get back any payments made plus interest.  If he does not rescind within 28 days, he is deemed to have elected to wait for completion, in which case the vendor pays him interest on payments already made.  If the Buildings are not completed within a further six months, the purchaser again has the right to rescind or wait for completion.  Time is of the essence of the Agreement as provided by Clause 15.

32. Let us assume that there was no completion of the Buildings by 30 June, and no valid certificate of extension.  In that case, the right of rescission would have to be exercised by 28 July.  The defendants knew the date of completion; if they had wished to rescind it was open to them to do so.  But there was no rescission and so the defendants would be deemed to have elected to wait for completion.  Completion of the buildings is deemed to have taken place in any event on the issue of the consent to assign.  So by October 1998, there would have been no right to rescind.  The defendants could not rely on an estoppel arising from their not exercising their right to rescind, because of a representation made on behalf of the defendant.  By the time of the representation, if it was made, that right was no longer open to them. 

33. On this basis, it seems to me, there is simply no sustainable defence and the Defence and Counterclaim fell to be struck out.  The plaintiff was also entitled to summary judgment under Order 86.