LAU CHI WING v. NG KA HI

DCCJ 1689/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1689 OF 2010

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BETWEEN

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JUDGMENT

Background

1.  The Plaintiff ("Mr. Lau") claims against the Defendant ("Mr. Ng") for recovery of a sum of $148,000, being the total sum paid by Mr. Lau under a Provisional Agreement for Sale and Purchase dated 10 December 2009 ("Provisional Agreement") and a formal Sale and Purchase Agreement dated 19 January 2010 ("Agreement"). The Provisional Agreement and the Agreement relate to Mr. Lau's purchase from Mr. Ng of Unit 12 on the 5th floor of Wah Sang Industrial Building in Shatin ("Property") from Mr. Ng for the total purchase price of $1,480,000 ("Price"). Completion of the sale and purchase was agreed to take place on or before 29 January 2010, which was later extended by agreement to 2 February 2010. Completion did not take place as scheduled. Mr. Lau claims that he is entitled to seek from Mr. Ng the refund of the total sum of $148,000 paid by him under the Provisional Agreement and the Agreement. On his part, Mr. Ng claims that he is entitled to forfeit the said sum, which had been paid and received by him as deposits to secure the completion of the sale and purchase.

2.  Clause 2 of the Provisional Agreement states that the sum of $50,000 was payable as "initial deposit" upon the signing of the Provisional Agreement, and that a sum of $98,000 was payable upon the signing the Agreement as "further deposit".

3.  Clause 18 of the Provisional Agreement provides as follows:

“另買家清楚知道該物業樓契屬影印契，如因上述物業之樓契文件引致銀行未能提供按揭，買家則有權取消此合約之成交及賣買雙方無需支付經紀佣金。”

Translated, it reads:

"Further, the Purchaser clearly understands that the deeds for the Property are photocopies, and if the deeds and documents of the Property lead to the inability of the bank to provide a mortgage, the Purchaser has the right to cancel the completion of this agreement and both the Vendor and the Purchaser will not have to pay commission to the agent."

4.  The Agreement was signed pursuant to the Provisional Agreement, and it incorporates the essential terms and in particular clause 18 of the Provisional Agreement verbatim.

5.  Under the First Schedule to the Agreement, provisions on the Price refer to $50,000 as having been paid as "initial deposit", and the sum of $98,000 as being payable as "further deposit" upon the signing of the Agreement.

6.  Clause 8 of the Agreement provides:

"Subject to the additional term(s), condition(s) and stipulation(s) set out in the Fourth Schedule hereto, the Vendor shall give title to the Property in accordance with Section 13A of the Conveyancing and Property Ordinance, Cap. 219."

7.  Clause 11 of the Agreement provides, inter alia, as follows :

"Subject to the additional term(s), condition(s) and stipulation(s) set out in the Fourth Schedule hereto, such of the documents of title as are required for the purpose of giving title to the Property shall be delivered to the Purchaser."

8.  The Fourth Schedule sets out the additional term, condition and stipulation referred to in the body of the Agreement, in identical terms to those set out in clause 18 of the Provisional Agreement.

9.  Clause 14 of the Agreement provides as follows:

"Should the Purchaser for any cause other than due to the default (of) the Vendor fail to complete the purchase in accordance with the terms and conditions herein contained the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or his Solicitors to such effect…and the Vendor shall be entitled to forfeit all the said deposits."

10.  Clause 15 of the Agreement provides :

"In the event of the Vendor (other than provided herein or due to the default of the Purchaser) failing to complete the sale in accordance with the terms hereof, all monies paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall forthwith be returned to the Purchaser …"

11.  Mr. Lau claims that he was not able to obtain mortgage facilities to finance the purchase of the Property by reason of the absence of the relevant title documents, and that it was pursuant to clause 18 of the Provisional Agreement and the Fourth Schedule to the Agreement that by a letter dated 2 February 2010 ("Notice"), he had given notice to Mr. Ng's solicitors to "annul" the sale and purchase of the Property, and to demand refund of the deposits of $148,000 paid by him. The money was not paid by Mr. Ng.

12.  Proceedings were instituted in May 2010, and by a summons issued on 11 November 2010 ("Summons"), Mr. Lau applied for summary judgment to be entered in his favor for the sum of $148,000, and to strike out the Defence filed by Mr. Ng on 12 August 2010, on the ground that it discloses no reasonable defence, is scandalous, frivolous or vexatious, may prejudice or delay the fair trial, or is an abuse of process.

Legal principles

13.  The principles applicable to applications for summary judgment are clear.  To resist an Order 14 application, the defendant must show that there are triable issues.  A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd. v. Ocean Joy Investments Ltd. [2003] 1 HKC 438.  The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence.  The burden of proof is not a heavy one.  It is not the function of the court at this stage to assess if a defence will succeed at trial.  Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law. Further, it is for the defendant to condescend on the particulars of the defences raised.

14.  For striking out, the law is clear that it is only in plain and obvious cases that the court should exercise its summary powers to strike out a defendant's defence. There should be no trial upon affidavits. Disputed facts are to be taken in favor of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The pleading must be unarguably bad.

Whether there are triable issues

15.  The Defence filed on 12 August 2010 pleads (in paragraph 23) that Mr. Lau had not produced any evidence in the Notice to show that "all the banks in Hong Kong" had refused to grant a mortgage loan to Mr. Lau, and that Mr. Lau was accordingly required to complete the purchase.

16.  In his affirmation filed on 17 December 2010 to oppose Mr. Lau's application for summary judgment and to strike out the Defence, Mr. Ng further deposed to the fact that he had only agreed to give Mr. Lau an option not to complete the purchase if he could not obtain a mortgage loan by reason of the absence of the original title deeds to the Property, but clause 18 of the Provisional Agreement does not provide that Mr. Ng would have to return the deposits to Mr. Lau in such event, and he had never intended to give Mr. Lau such right to the refund of the deposits.

17.  Counsel for Mr. Lau pointed out that it has not been pleaded in the Defence that Mr. Ng is not required under the Provisional Agreement and the Agreement to return the deposits paid by Mr. Lau. A defendant is entitled to show that it has a defence "by affidavit or otherwise".  I can therefore, and should, take into consideration whether the deposit argument constitutes an arguable defence.

18.  At the hearing of the Summons, the parties have not made submissions on whether Mr. Ng had proved title, and (perhaps rightly at this stage) on whether Mr. Lau has established that the situation contemplated by clause 18 and the Fourth Schedule has arisen, ie. inability of the bank to provide a mortgage as a result of the title deeds. Instead, the parties have focused on the distinction between Mr. Ng's right to cancel the Provisional Agreement and the Agreement on the one hand, and his right to cancel the sale and purchase transaction envisaged under the Provisional Agreement and the Agreement on the other hand. At this stage of the proceedings, I do not consider that any such distinction makes a material difference. The real issue relating to Mr. Lau's right to recover the sum of $148,000 turns on the proper construction of clause 18 of the Provisional Agreement and the Fourth Schedule to the Agreement, and whether clause 14 of the Agreement is applicable.

19.  Construction of an agreement is a question of law. In this case, where the contract made between the parties is in writing, evidence as to the negotiations prior to the signing of the Provisional Agreement and of the Agreement, and evidence of the parties' subjective intention of the meaning and effect of clause 18 and the Fourth Schedule are inadmissible (Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896, 912-3). The approach to construction is objective. The question is not one or the other of the parties meant or understood by the words used, but the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (Chitty on Contracts, 30th edition, para 12-043). As stated in Bewise Motors Co. Ltd. v. Hoi Kong Container Services Ltd. (1997-98) 1 HKCFAR 256 at 275F:

"The cardinal presumption is that the parties had intended what they had in fact said, so that their words must be construed as they stand. That is to say, the meaning of the document or a particular part of it is to be sought in the document itself."

20.  The position is clearly stated in Jumbo King Ltd. v. Faithful Properties Ltd. (1999) 2 HKCFAR 279 at 296 :

"Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession."

21.  I am not satisfied that it is necessary for Mr. Ng to give evidence at trial on his intentions regarding, or his understanding of clause 18 of the Provisional Agreement, or the Fourth Schedule, such that this constitutes a triable issue or reason for trial.

22.  Mr. Ng’s case is that as Mr. Lau had failed to complete the purchase, clause 14 of the Agreement applies and he is entitled to forfeit all the deposits. If clause 14 applies, he has a good defence to Mr. Lau’s claims.

23.  Construed as a whole, clause 14 of the Agreement and clause 7 of the Provisional Agreement (to which Counsel for Mr. Lau has referred) which refer to the purchaser's failure to complete the purchase "in accordance with the terms and conditions of (the Agreement)" and "in the manner contained (in the Provisional Agreement)" should be read subject to clause 18 and the Fourth Schedule, which confer on the purchaser an option not to complete in the situation provided for. Where the situation envisaged by the Fourth Schedule applies, the parties' rights and remedies should be governed by the provisions of the Fourth Schedule.

24.  Clause 18 and the Fourth Schedule only expressly provide for the right of Mr. Lau as purchaser to cancel the transaction under the Agreement, without making any provision as to the status of the amounts paid by Mr. Lau upon the signing of the Provisional Agreement and the Agreement, and the parties' rights in relation to such amounts. Counsel for Mr. Lau argues that it naturally follows from the cancellation of the sale and purchase as permitted by clause 18 and the Fourth Schedule that the Provisional Agreement and the Agreement are determined, and Mr. Lau should be entitled to the refund of the deposits paid.

25.  Counsel for Mr. Ng argues, on the other hand, that where money is paid under a contract which is not completed, the right of the payer to claim for the return of the money paid depends on the construction of the terms of the contract, and if the money paid is termed a "deposit", then in the absence of any other express provision governing it, the "deposit" paid will be taken to be required as security for the completion of the contract by the payer, and will hence be forfeited if the payer fails to perform his side of the contract. Counsel relies on Chitty on Contracts, 30th Edition, para 29-064, and on the judgment of Ribeiro PJ in Polyset Ltd. v. Panhandat Ltd. (2002) 5 HKCFAR 234, at 261J and 262B-D & F-G.

26.  Where the situation envisaged by clause 18 and the Fourth Schedule arises and these provisions apply, they are silent on how the sum of $148,000 is to be dealt with, but as the payments of $50,000 and $98,000 have consistently been referred to in the Provisional Agreement and the Agreement as deposits, I agree that it is arguable that a term can be implied that if the purchase is not performed by Mr. Lau, the amounts paid as deposits can be forfeited and remain the property of Mr. Ng.

27.  So even assuming that clause 14 of the Agreement does not apply to assist Mr. Ng, and also, that paragraph 23 of the Defence cannot succeed and Mr. Lau can establish that clause 18 and the Fourth Schedule have been triggered as Mr. Lau could not find a bank to provide a mortgage, I am satisfied that there is an arguable defence that on a proper construction of the Agreement as a whole, Mr. Lau is not entitled to the return of the deposits paid.  Being thus satisfied that there is a triable issue, it will not be necessary for me to express any further view on whether Mr. Ng has proved title, and whether he is in default or breach of the Agreement, which should be dealt with by the trial judge.

Whether the Defence should be struck out

28.  Since the Defence discloses an arguable defence, I am not satisfied that it should be struck out on any of the grounds relied upon by Mr. Lau.

29.  I will accordingly grant Mr. Ng unconditional leave to defend, and dismiss the application to strike out the Defence filed. The parties should comply with Order 25 rule 1 within 14 days after the handing down of this Judgment to seek further directions for the management of the case, and to bring the case to trial.  I will make an order nisi that the costs of the Summons be in the cause, with certificate for Counsel.