IP FAI MAN v. LUI KIT MAN

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13661 OF 1998

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J U D G M E N T

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1. The plaintiff as purchaser and the defendant as vendor entered into an agreement for the sale and purchase of a flat. On the agreed date of completion the plaintiff repudiated the agreement because of the defendant's breach. Having paid the deposit he now sues to recover that and for damages for additional loss. The defendant denies having been in breach, claims the plaintiff's repudiation was wrongful and counterclaims for the right to retain the deposit as having been forfeited and for damages for additional loss suffered.

Background

2. The plaintiff is Ip Fai Man (Mr Ip) and the defendant is Lui Kit Man (Madam Lui). The flat in question is a residential unit in Shatin. At the material time Madam Lui was the registered proprietor of the flat. The agreement they entered into as vendor and purchaser in standard form (the formal agreement) was dated 13 November 1997. It was preceded by the usual provisional agreement (the provisional agreement) dated 24 September 1997.

3. Mr Ip was introduced to the prospective purchase by Madam Lui's agent, called Dorothy Cheng (Dorothy) of Ricacorps Properties Limited. Professing to be satisfied with the price and waiving prior inspection Mr Ip said he would buy on the vendor's terms. Dorothy prepared a draft provisional agreement and he signed it as an offer. The price was $3,030,000 of which $80,000 was the initial deposit and the deposit overall $303,000. The date for completion was 31 July 1998, the date Dorothy said was the earliest upon which Madam Lui could complete. Though that was 10 months or more distant Mr Ip took no issue.

4. The offer was not accepted as originally presented. Dorothy brought Madam Lui to Mr Ip's office and there certain amendments were discussed and agreed, the most significant of which was the change of completion date from 31 July to 10 August. Why that came about is disputed as I shall come to. In any event the parties signed as amended and thus the provisional agreement was made. It was followed up in November by the formal agreement. It incorporated the specific terms of price, deposit and completion date as already agreed. Clause 4 provided as a condition precedent for vacant possession. Schedule 7, under the heading existing tenancy, recorded "nil". Clause 6 made time of the essence. The following clauses pertinent to these proceedings were also incorporated, repeated here verbatim:-

9.	(a)	The Vendor hereby declares and confirms that other than the Mortgagee no third party (whether related or otherwise) has any right or interest whatsoever, whether legal or equitable, in the Property. The Vendor further hereby declares and confirms that the Vendor has the absolute right and interest in the Property and the Property was purchased was purchased (sic) with the Vendor's own monies and the mortgage loan was repaid by the Vendor with the Vendor's own monies. In the event of any valid third party claims to the Property, whether legal or equitable, on or before completion the Vendor shall forthwith return the deposit and all other monies paid herein which form part of the purchase price to the Purchaser and without prejudice to the Purchaser's right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason for the Vendor's failure and/or inability to complete the sale in accordance with terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution.
	(b)	The Vendor hereby undertakes with the Purchaser that the Vendor will not after the signing of this Agreement create any charge or further charge or mortgage or deed of variation or any other document or instrument or any other encumbrances whatsoever which affect the Property or enter into any agreement so to do.
10.		The Vendor shall permit the Purchaser or the Purchaser's authorized agent to inspect the Property at a time convenient to the parties hereto:
	(a)	once prior to the Completion Date and
	(b)	once upon the Completion Date but prior to Completion for the purpose of verifying delivery of vacant possession.
17.	(a)	Should the Purchaser (other than due to the default of the Vendor) fail to complete the purchaser of the Property in accordance with any of the terms and conditions contained herein, then all deposit(s) paid hereunder shall be absolutely forfeited (not as a penalty) to the Vendor who may thereupon (without being obliged to tender an Assignment to the Purchaser) by notice given to the Purchaser rescind the sale herein;
	(b)	Upon the Vendor exercising his right to rescind the sale herein under Sub-clause (a) of this Clause, the Vendor may but is not obliged to register a memorandum of rescission signed by the Vendor alone in the Land Registry;
	(c)	Upon the Vendor exercising his right to rescind the sale herein under Sub-clause (a) of this Clause, he may but is not obliged to resell let lease or otherwise deal with the Property or any part thereof either by public auction or by private contract and on such terms conditions and subject to such stipulations as the Vendor shall deem fit. Furthermore, in the event of the Vendor having elected to and did sell the Property, any deficiency in price and all expenses attending such resale shall be paid by the Purchaser and be recoverable by the Vendor as and for liquidated damages. Any increase in price or profit made by the Vendor from such resale shall belong to the Vendor;
	(d)	This Clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights under this Agreement or to enforce specific performance of this Agreement.
18.		If the Vendor shall fail (other than the default of the Purchaser) to complete the sale in accordance with the terms hereof then the said deposit(s) and all other monies which form part of the purchaser price paid shall be returned forthwith to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor.
22.		The Vendor shall prove his title according to Section 13 of the Conveyancing and Property Ordinance. Any requisition in respect of title shall be delivered in writing to the Vendor's Solicitors within 8 business days from the date of receipt of the title deeds by the Purchaser's solicitors, otherwise the same shall be considered as waived.
23.		If the Purchaser shall make and insist on any objection or requisition either as to title or any matter appearing on the title deeds or otherwise which the Vendor shall be unable or (on the ground of difficulty delay or expense or on any other reasonable ground) unwilling to remove or comply with, or if the title of the Vendor shall be defective, the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his solicitors not less than 5 business days' notice in writing to annul the sale in which case, unless the objection or requisition in question shall have been in the meantime withdrawn, the sale shall at the expiration of the said notice be annulled and the parties hereto shall at their own cost enter into a Cancellation Agreement to cancel this Agreement and the Vendor shall at the same time refund to the Purchaser the said deposit(s) and all other monies paid which form part of the purchase price but without costs interest or compensation.
24.		Save as herein varied or excluded there are incorporated into this Agreement as if they were herein written the conditions respectively on the part of the Vendor and the Purchaser set out in Part A of the Second Schedule to the Conveyancing and Property Ordinance and in case of any inconsistency or conflict between these present and the provisions of the said Ordinance, these presents shall prevail.
25.	(a)	This Agreement supersedes all previous agreements, whether oral or in writing, entered into by the parties hereto or their agents;
	(b)	This Agreement sets out the full agreement between the parties hereto. No warranties or representations express or implied are or have been made or given by the Vendor or by any person on his behalf relating to the Property other than those set out in this Agreement and if any such warranty or representation express or implied has been made or given the same is hereby expressly withdrawn or deemed to have been withdrawn immediately before the parties hereto entering into this Agreement ...

5. Mr Ip paid the deposit which was received and accepted by Madam Lui.

6. On 10 August 1998, the date for completion, Mr Ip through his solicitors gave notice that he was ready, willing and able to settle, but declined to do so pending production of a document called for simplicity the "surrender agreement" as I shall come to. Madam Lui through her solicitors declined to produce the surrender agreement, whereby on 11 August Mr Ip through his solicitors gave notice that the agreement was thereby determined, and made demand for the deposit and reimbursement of expenses incurred. Madam Lui's response through her solicitors was to deny breach, state Mr Ip's repudiation was wrongful, herself determine the agreement, claim the deposit was forfeited and reserve her rights.

7. The parties not being able to resolve their differences these proceedings issued.

8. How they came to reach this impasse I shall come to next by recounting the evidence of the two witnesses Mr Ip and Madam Lui, and referring to the documents produced as agreed evidence.

Evidence

9. Mr Ip came first.

10. He conceded he had no wish to inspect the flat before committing himself to the purchase. When it came to signing the offer he was content with the relatively long lead up time to the proposed date for completion, namely 31 July 1998, of slightly more than 10 months. It was Madam Lui, in his presence, who wanted a further extension to 10 August. She did not say why and he did not ask. He simply agreed; and so that date was fixed upon.

11. In late July 1998 through Dorothy he asked to inspect the flat for the first time. This was because his prospective mortgagee required to do so as a prerequisite to the granting of the loan he had applied for. He was told that could not be possible before the end of July, because the flat was tenanted and the tenants were still in occupation. On Mr Ip's account that was the very first time he came to learn the flat was tenanted, in apparent contradiction of the 7th schedule of the formal agreement. That worried him. A tenant, in occupation, a few days before he was due to take title and vacant possession? He took it upon himself to see for himself. On 30 July he presented himself at the flat where he met the occupant. She said she was Madam Ho and that she and her family had been living there for two years, but they were due to leave that very day. She showed him the tenancy agreement, from which he noted that whilst it was clearly of the flat for a term to expire on 9 August, the landlord was named not as Madam Lui but Linken Data Development Company (Linken). This worried him further. Did it not indicate that he was perusing a sub-tenancy, so that even if Madam Ho could be relied on that her family was moving out, there might be an ongoing head tenancy prejudicial to his rights? It was because of that that he instructed his solicitors to require as a pre-requisite for completion an executed surrender of such tenancy; the surrender agreement as I have earlier described it. The response a day or two later was that the flat was by now vacant and he could inspect it himself to satisfy himself of that. But that did not allay his fears that there may be lurking a head-tenant with rights adverse to his own. In the event he did not make any inspection because his bank to whom he subsequently applied for mortgage accommodation did not require it before approving his loan application. On the day of completion he was in funds and tendered for completion, but insisted that the surrender agreement be presented as a pre-requisite. When that was not forthcoming his solicitors gave notice of repudiation and made the demands to which I have referred.

12. Then I heard from Madam Lui.

13. She said it was on her preliminary instructions to Dorothy that the completion date of any sale of the flat could not be earlier than 31 July of the next year because it was occupied by tenants whose tenancy agreement was not due to expire until then. The tenant was recorded as Linken which is wholly owned by a Mr Tam Wai, married to Madam To, whose family were the occupants. When Dorothy presented Mr Ip's offer she checked to find that she had miscalculated and that the Linken tenancy was not due to expire until 9 August. When the three of them met on 24 September at Mr Ip's office she told him why the date had to be changed to 10 August, by which means he knew then, if not before, that there was a tenancy and there were tenants. He was quite agreeable to the change in completion date. She said when it came to signing the formal agreement it was proposed on Mr Ip's behalf that any reference to the tenancy be withheld so as to make it easier for him to get a mortgage. She saw no harm in this; first it was for the benefit of her purchaser and secondly the flat would be clear of a tenancy by completion date with vacant possession stipulated.

14. She recalled a request made by Mr Ip, relayed by Dorothy in July, that he wanted to arrange an inspection by representatives of his prospective mortgagee. She denied that she withheld her consent, but did ask that she be furnished with the name card of anyone making the inspection, so that she could alert her tenants to expect visitors and their purpose. But in the event she heard no more. Then it was that the tenants moved out as promised and by notice of 4 August her solicitors notified Mr Ip's that she now had vacant possession to pass to him on completion date. When the argument arose concerning the surrender agreement she left it to her solicitors to deal with. In fact there did exist such a document, signed by Linken and her in February 1998. But she saw no reason to have to release it as a document of title and condition of completion given that there was, by then, vacant possession as promised. She had, by 10 August, done all that was required of her; Mr Ip's repudiation was wrongful and she is now entitled to recompense.

The Claims

15. Mr Ip seeks a refund of the deposit he paid of $303,000, interest and a penalty charge he had to pay his bank for early redemption of $51,117.74, stamp duty on the agreement of $48,100, and an indemnity of up to $20,000 due to his solicitors but not yet paid, making a total of $422,217.74, interest thereon and costs.

16. Madam Lui for her part counterclaims as damages $1,280,000 being the agreed difference between the purchase price under the formal agreement and the flat's value in August 1998 less the deposit retained as forfeited, making a total of $977,000, interest thereon and costs.

17. The parties whilst denying liability have each agreed the extent of that liability in the event of an adverse finding as above claimed.

18. I come now to the matters I am required to resolve.

The Issues

19. There is a dispute of fact between the parties as to whether Mr Ip had notice of the tenancy before he committed himself to the purchase.

20. There is a dispute of law as to whether the tenancy agreement and any surrender thereof constituted documents of title requiring thus Madam Lui to comply with conditions 8 and 9 of part A of the Second Schedule to the Conveyancing and Property Ordinance (incorporated into the final agreement by clause 24) and furnish copies to Mr Ip's solicitors upon request and demand.

21. I propose to deal with the conflict in law first, on the supposition that Mr Ip did not know about the tenancy until late July 1998.

Findings in Law

22. If Mr Ip's account is correct and he knew nothing about a tenancy until late July then his immediate concern conveyed in his solicitors' letter of 29 July was only that he gain access for inspection to facilitate his mortgage application or, in the alternative, that he be shown the surrender agreement for confirmation of vacant possession on completion. It was not until 5 August that his solicitors demanded the surrender agreement for "verification as proof of title documents for delivery of vacant possession of the property". But by then, namely by letter of 4 August, Madam Lui's solicitors had written to say the premises were vacant, giving confirmation to an assurance already made by letter of 1 August. Mr Ip was then invited to inspect and verify, which he chose not to do, giving no reason. Under clause 10(b) of the formal agreement he had a similar right on the day of completion for the express purpose of satisfying himself there was vacant possession. But again he chose not to, demanding only a sighting of the surrender agreement. Was that justified, the refusal of which gave him the right to repudiate?

23. In my view, the issue of vacant possession in the context of this case was a question of conveyancing simpliciter. Whilst the existence of a tenancy or lease might in some circumstances be a matter of title, where, as in this case, the termination of the tenancy and cessation of the tenant's rights are within the powers of the vendor to enforce so as to comply with the bargain he has made with his purchaser, then the existence of the tenancy is not a matter which goes to title.

24. This proposition is spelt out in the case of Sharneyford Supplies Limited v. Edge [1985] 1 All ER 976, in which case Mervyn Davies J was required to deal with a sale and purchase dispute of a farm where vacant possession was not available on completion date. At p. 985 he said:-

"If the occupants of the farm were trespassers or licensees, it was within the defendant's (vendor's) power to have them removed so as to be able to give vacant possession; so that there was no inability to show a good title. But if the occupants were tenants, for a term of years or yearly, then it was not within the defendant's power to have them removed by 12 December 1979 (completion date) so that there is an inability to show good title.

25. It may well have been otherwise had there been a head tenancy whose terms extended beyond the completion date so as to deny Mr Ip vacant possession he had cause to suspect. Of course, as it happened, the so called sub-tenancy was no more than an in-house device and posed no threat to his rights as a simple enquiry would have revealed. Yet he made no such query. As it was his vendor was obliged only on the day of completion to give vacant possession and this she patently could do and would have done had Mr Ip chosen not to repudiate.

26. It follows as I find that Mr Ip was not justified in law to insist on sighting the surrender agreement and then to repudiate when that was denied him. He was contractually bound to complete, did not, and Madam Lui thus has the right to pursue the remedies spelt out in clause 17(a) of the formal agreement.

27. My findings in law having been arrived at regardless of whether Mr Ip knew or did not know of the tenancy before he committed himself to the purchase, there is no point in my resolving the dispute of fact.

28. I come then to the outcome.

The Outcome

29. Madam Lui's counterclaim succeeds where Mr Ip's claim fails. Her assessment of loss not being challenged there will be judgment for her to that extent. Costs shall follow the event and be to Madam Lui. But as I have not had the benefit of argument this part of the orders I make will be nisi at first instance.

30. But before I recite the orders I want to comment, adversely, on the conduct of Madam Lui's solicitors. Though there was a suggestion Mr Ip's repudiation was mala fides because of the drastic slip in the property market between the dates of commitment and completion, there was nothing in the evidence to support that. On the contrary, he was in funds, tendered for settlement, stood ready to complete and would have done so upon sighting the surrender agreement. When these arguments on points of law raised themselves, Madam Lui, understandably, left it to her solicitors to sort out and protect her interests. But they let her down. The surrender agreement was in their possession to produce. Yet they persistently refused to hand it over though to do so would not have prejudiced their client. Their reason for not doing so (according to Madam Lui's counsel, Mr Shum, to whom, I should make clear, no criticism attaches) was that it was their client's right to withhold it. Perhaps so; that is as I have found. But was it in their client's interests? Clearly it was not. Had they released it, under protest if thought necessary, the deal would have gone through and she would have got her money forthwith and in full. As they chose not to, that inevitably committed her to litigation with the attendant uncertainty, delay and significant costs, only some of which she will recover, even if the judgment debt is paid in full.

31. Mr Yu, counsel for Mr Ip, quite rightly observed that it is not for conveyancing solicitors to treat their domain as a battlefield. I have seldom come across proceedings where this sentiment is more pertinent. This litigation could so easily have been avoided and should have been, had Madam Lui's advisers displayed a modicum of commonsense and professional judgment, and put their client's interests first.

32. I now come to the orders.

The Orders

33. There shall be judgment in favour of the defendant in the sum of $977,000 together with interest at the rate of 8 percent per annum from 10 August 1998 to the date of this judgment.

34. Costs including any reserved shall be to the defendant taxed if not agreed.

35. The order for costs shall be nisi at first instance with liberty for either party to restore for argument on notice given within 14 days of this judgment.