LAU SUN CHUNG v. SO WAI KI

DCCJ 16366/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.16366 OF 2000

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J U D G M E N T

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1. This action concerns the sale and purchase of a property known as Flat No. 8 on 33rd Floor of Block A, King Shan Court, No. 32 Fung Shing Street, Kowloon ("the Property"). It is not disputed that the Property was a property under the Home Ownership Scheme, and was originally owned by the Housing Authority. On or about 7th December 1982, the Housing Authority assigned the Property to one Leung Chun Shum ("DW1"), but subject to the restriction on alienation as imposed by the Housing Ordinance.

2. The disposition or alienation of any land under the Home Ownership Scheme is governed by the Housing Ordinance, Cap. 283. The old version of section 17B in 1994 reads:-

"Where -

(a) any land in any estate is sold under section 17A to any person; . . . .

any alienation or conveyance or purported alienation or conveyance or any agreement to alienate or convey such land -

(i) by that person in breach of any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to such land; and

(ii) . . . .

shall be void."

Paragraph 1 of the Schedule goes on to provide:-

"1. Subject to paragraph 4 of this Schedule, the purchaser shall not at any time alienate, convey, charge or part with possession or purport to alienate, convey, charge or part with possession or enter into any agreement to alienate, convey, charge or part with possession of the land sold other than to the Authority, or such person as the Authority may nominate, unless -

(a) either

(i) a period of 10 years has elapsed from the date of the assignment to the purchaser; or

(ii) . . . .. ; and

(b) the purchaser has first paid to the Authority the amount of the premium calculated under the following formula."

Paragraph 4 further says:-

"4. Notwithstanding that the purchaser has not paid premium mentioned in paragraph 1 of this Schedule, he may -

(a) . . . ..

(b) where -

(i) . . . .

(ii) 10 years has elapsed since the date of the assignment,

enter into any agreement for sale and purchase of the land providing it is a condition of such agreement that the premium as assessed by the Director be paid to the Authority prior to assignment and within 28 days of the date of the agreement or within such period as may be otherwise stipulated by the Director."

3. There have been amendments from time to time on the provision of the Housing Ordinance against alienation. In gist, the Property may not be sold within 10 years from the date of acquisition and on resale after 10 years, the owner must pay a premium to the Housing Authority before assignment.

4. By an agreement dated 22nd November 1993, DW1 agreed to sell the Property to So Wai Hong and the Defendant as tenants in common subject to the terms and conditions of the said agreement. DW1 agreed inter alia to pay the premium payable to the Housing Authority to release the restriction against alienation on or before completion. The assignment of the Property was dated 5th January 1994 ("the 94 assignment"). The date of execution of this assignment is the key issue herein.

5. Later, by another assignment dated 7th May 1997, the said So Wai Hong assigned his interest in the Property to the Defendant who then became the sole owner.

6. In 2000, the Defendant signed a provisional agreement for sale of the Property to the Plaintiff at the price of HK$1,100,000.00. According to the provisional agreement, the Plaintiff and the Defendant signed a formal sale and purchase agreement dated 7th April 2000. The Plaintiff paid a total of HK$110,000.00 to the Defendant as deposit. The completion was fixed on 15th July 2000. The Defendant as vendor had to prove and give good title to the Property in accordance with section 13 of the Conveyancing and Property Ordinance. A copy of the agreement appears at page 77 of the Defendant - Bundle.

7. The solicitors for the Plaintiff discovered that the letter of the Housing Authority which confirmed that the premium had been paid, and hence the restriction against alienation lifted, was dated 6th January 1994, one day later than the date of the 94 assignment. The Plaintiff's solicitors raised this as a query on the title of the Property. The letter of requisition appears at page 89 of the bundle.

8. This started a whole series of correspondence between the Defendant's solicitors with DW1's (the former vendor's) solicitors. About the same time, Housing Department confirmed that the premium had only been paid on 6th January 1994.

9. DW1's solicitors took the view that the assignment was executed in escrow. It was to take effect only when the premium was paid. When they returned the assignment to the Defendant's solicitors, it had not been dated. The date of 5th January 1994 was a mistake of the Defendant's solicitors and it did not reflect the true date of the assignment. I should come back to this argument later.

10. The Defendant's solicitors prepared a draft deed of rectification. This draft was sent to the Plaintiff's solicitors for their approval. Recital 3 states:-

"Although the Assignment was executed by the Purchaser and Vendor in escrow on 5th January 1994, it was both the Vendor and the Purchaser's intent and agreement at all material times that the Assignment should come into effect after the payment of the Premium by the Vendor to the Hong Kong Housing Authority on completion of the sale and purchase of the Property between the parties herein."

11. The draft deed continues to say that the Assignment has been inadvertently and mistakenly dated the 5th January 1994. Both the Defendant and DW1 confirm that the date of the Assignment should be 6th January 1994, that is after the premium has been repaid.

12. But the Plaintiff's solicitors are of the view that the draft deed is self-serving. The real issue is when the transaction actually took place. In their letter dated 14th June 2000 to the Defendant's solicitors, they requested for proper conveyancing evidence to prove that the completion was scheduled to take place on 6th January 1994 and the Hong Kong Housing Authority knew the completion took place on 6th January 1994 instead of 5th January 1994.

13. The Defendant's solicitors did arrange for the execution of the said draft deed and send the original to the Plaintiff's solicitors. There were a number of correspondences between the Plaintiff's and the Defendant's solicitors on whether the 94 assignment was defective and various argument had been raised by the Defendant's solicitors. At the hearing herein, none of these argument were relied upon by the Defendant and the Defence counsel conceded that the title document of the Property without any rectification is defective. But he submitted that the deed of rectification is sufficient to clear all doubts and it is unreasonable for the Plaintiff to refuse to accept the title then.

14. By letter dated 15th July 2000, the Plaintiff refused to complete on the ground that the Defendant had failed to show and give good title. They demanded return of the deposit (see page 129 of Defendant-Bundle). As the Plaintiff refused to accept the title and to complete the sale, the Defendant treated the refusal as repudiation and terminated the agreement. By a letter dated 15th July 2000, the Defendant accepted the repudiation of the Plaintiff and forfeited the deposit (see page 130 of Defendant-Bundle). Now the Plaintiff brings this action to seek a declaration that the title has not been proved and they are entitled to refund of the deposit and damages for the breach.

15. The late Mr. Justice J. Chan in Chan Chi Hung v. Tse Ying Piu HCMP 3630 of 1994 has considered completion for the sale and purchase of premises subject to restriction against alienation under the Housing Ordinance. In this case, the property in issue is also subject to limitation on alienation. It is provided in the sale and purchase agreement that the vendor shall undertake to settle the premium with the Housing Authority on or before completion and provide the Vendor with a confirmation letter of receipt from the Housing Authority dated not later then the completion date. His Lordship said:-

"It is beyond a peradventure that the premium must be paid on or before completion. .....Payment of the balance of purchase price and execution of assignment are, pursuant to cl.3 of the Agreement (as in normal practice), concurrent occurrences unless the purchaser consents to tender the cheques first and wait in the solicitors' office for the vendor to rush the cheque over to the Housing Authority or the government shroff's office to pay the premium before executing the assignment. .... Execution of the assignment of the property before payment of premium would render the assignment void under s.17B of the Ordinance."

16. In the above case, there was no payment or delivery of cheque. The issue was whether the purchaser could refuse to pay the balance of the purchase price before the vendor paid the premium. His Lordship emphasized that execution of the assignment of the property before payment of the premium would render the assignment void, and the purchaser was not obliged to pay over the purchase price before completion. Without paying that premium, the vendor was not in a position to complete the sale. Therefore His Lordship suggested if the purchaser agreed to release the money to the vendor, the vendor had to tender the payment first before executing the assignment.

17. The arrangement of execution of the assignment in escrow has not been considered by Mr. Justice Chan. But the above ruling was adopted by Mr. Justice M. Wong in another case, Cheung San Hung v. Lau Ngai Hong Danny HCMP 3439 of 1995. This is a vendor and purchaser summons. The fact is very similar to this case. The vendor and purchase signed a sale and purchase agreement. The purchaser then discovered that the assignment in favour of the vendor was dated 22nd March 1994 and the premium was not paid until 24th April 1994. The vendor's solicitors argue that:-

"(1) the assignment was incorrectly dated, it should have been dated 25th April 1994;

(2) [the vendor] only executed and delivered the Assignment on 22nd March 1994 in escrow pending payment of the premium to the Housing Authority; and

(3) the cheques for the payment of the premium should have been delivered to the Housing Authority on 22nd March 1994 but payment was delayed until 25th April 1994 due to clerical errors of the solicitor acting for [the vendor]."

18. The vendor counsel relied on a clause in the agreement providing for postponing the completion date if the vendor has not paid the premium. The argument was rejected by Mr. Justice M. Wong. He further said the date on the Assignment is clear, distinct and unambiguous and could not have been wrongly typed or written for 25th April 1994. He also rejected the argument of "delivery in escrow".

19. The argument in the above case is similar to those raised by the Defence counsel in our case. I appreciate that the ground for saying that the assignment is delivered in escrow in this case is different. But there is one point in the judgment of Mr. Justice M. Wong which is of importance. He said:-

"....in the light of these provisions and the absence of any evidence on the intention of solicitors acting for [the vendor], it is not arguable that there could be an intention to complete the sale beyond 22nd March 1994."

20. Reading the whole, I believe His Lordship is not saying that it cannot be argued that an assignment was delivered in escrow. But there has to be evidence in support. And the solicitors for the vendor must be the best person to explain the arrangement for execution and completion.

21. I would refer to another case, where the property in issue is not a premises subject to the restriction against alienation. It is a completion in the Hong Kong style of completion and there is a ruling on when the assignment was executed, which is helpful to understand the said ruling of Mr. Justice M. Wong.

22. It is not disputed that most completion of sale and purchase of land in Hong Kong, including the completion of the sale of the Property, are done in the Hong Kong style of completion. The vendor and the purchaser do not actually sit together for the transfer of the purchase price and the execution of the assignment. They usually rely on their respective solicitors' undertakings to assist in the completion.

23. In the case Yau Siu Yeung v. Wing Sum Lo t/a Wing Sum Lo & Co [1988] HKC 693, the vendor entered a sale and purchase agreement with the plaintiff purchaser. The purchaser obtained a loan from his bank on or about 27th June 1985 and sent the balance of purchase price to the vendor's solicitors on 28th June 1985. On the same day, solicitors for the vendor used the money to repay the prior mortgage, but the discharge did not come back from the bank until 20th July 1985. The discharge with returned with the assignment to the vendor who then forwards it to the bank. The document was dated 30th July 1985. On 23rd July 1985, the defendant, a creditor of the vendor obtained a charging order against the property. The question is who has priority.

24. Mr. Justice Mayo ruled that it is legitimate to consider the evidence that had been adduced and if necessary to go behind the date appearing on the assignment to see when the completion took place. Then His Lordship ruled that the sale was completed when the vendor executed the assignment and handed it back to his solicitors, for the solicitors already held the purchase money. And the arrangement made for discharge of the prior mortgage is administrative and practical procedures to enable the respective solicitors to protect their own and their clients' interests. His Lordship adopted the ruling of Liu Man Bun v. Li Yek Leung [1986] HKC 183 and Edward Wong v. Johnson Stokes and Master [1984] 1 AC 296. Hence the plaintiff (purchaser) has priority over the defendant (chargee) as completion took place on 28th June 1985, the day of execution of the assignment.

25. The ruling of Mr. Justice Mayo clearly shows the reason why Mr. Justice M. Wong requires evidence from the vendor's solicitors on the mode of execution. It is clear that an assignment can be executed in escrow, or completed but kept by the vendor's solicitors pending the completion of some administrative act. What the arrangement is would be a finding of fact for each case.

26. And what is the evidence in our case on the arrangement?

27. The solicitors for DW1 had not been called to give evidence. The best I can do is to read the correspondence between DW1's solicitors and the Defendant's solicitors. I note, first of all, two letters of undertakings. The first one is dated 23rd December 1993 from DW1's solicitors to the Defendant's wherein they agreed to undertake to pay the premium for removal of transfer restrictions to the Hong Kong Housing Authority upon completion. The second letter is dated 5th January 1994 from the Defendant's solicitors to DW1's solicitors sending the cheques for completion against their undertaking to send to them the executed assignment and attested and dated no later than the completion date. It is obvious from these letters that the original intention of the parties is to complete the sale on the 5th and had all documents dated on that date.

28. It is therefore not surprising that when the requisition on title was raised by the Plaintiff, the Defendant's solicitors wrote to the DW1's in a letter dated 16th May 2000 (see page 24 of Defendant-Bundle) and said "there is no dispute that completion of the sale and purchase of the above property between our respective clients took place on 5th January 2000." It appears that the Defendant's solicitors had no knowledge that the 94 assignment would first be executed in escrow.

29. DW1's solicitors responded by blaming the Defendant's in dating the assignment of a day earlier than the date of the letter from the Housing Authority. They said:-

"It is quite clear to you that you should not have dated the Assignment before the premium had been paid, even if it had been executed by [DW1] in escrow pending that payment. Our return to you of the undated Assignment was of course on the basis that you would not date it without considering the legal consequence arising from the date of the Assignment earlier than the date of payment of the premium."

30. In the letter dated 19th January 1994 from DW1's solicitors returning the executed 94 assignment to the Defendant's solicitors (see page 51 of Defendant-Bundle), there is no mention of the execution in escrow. If the assignment was to be dated the 6th, then DW1's solicitors are already in breach of their undertakings to the Defendant's. Why did they not inform the Defendant's solicitors of this material discrepancy and only mentioned it in their letter in reply in 2000?

31. Now this may be the most helpful evidence for the Defendant. In a letter dated 2nd June 2000 (see page 100 of Defendant-Bundle), DW1's solicitors said in comment of the refusal by the Housing Authority to grant retrospective approval:-

"Having perused your letter dated 8th May 2000 to The Director of Housing Authority and its reply to you dated 17th May 2000, we feel it no surprising that the Director of Housing Authority did not take a sympathetic view on this case. You have failed to convey to him what had happened in the transaction. It is clear, as you are well aware, that never had our client breached the resale restriction, given that (1) the premium then payable to the Government had been taken out of the balance of purchase price; (2) the Assignment was executed in escrow pending payment of the premium; and (3) the parties' agreement that the Assignment would not have its effect unless and until the premium had been settled beforehand. In addition, you have failed to pint out to him that this is not a case of breaching the resale condition, but a mistake of the date of Assignment, which was made without due regard to the time the premium was paid."

32. But DW1's solicitors did not explain in so many words that they had arranged the execution to be in escrow pending payment of the premium. From their letters, they seem to be blaming the Defendant's solicitors for 'wrongly' dating the assignment as the 6th, which is all they said. And after all, these are hearsay evidence to which I can attach little weight.

33. The Defendant counsel argues that, be it that completion was to take place on the 5th, it doesn't matter. The issue is when the assignment was to take effect. DW2 intends to pass a good title. And the solicitors could not have intended to cause DW2 to commit an offence.

34. This is a very attractive argument. However it is for DW1's solicitors to explain that and they have not given any evidence. And I cannot draw inference from the fact before me that they must have so arranged the execution. They could have made a mistake and have never attached their mind to arrange execution in escrow.

35. DW1 in his statement said that he attended his solicitors' office on the 5th and was told by his solicitors to sign the said Assignment in escrow. DW1 understood that the cheque drawn in favour of the Housing Authority would be paid to the Housing Authority to settle the premium assessed and the Assignment so signed by him on the 5th would not take effect until the premium was paid to the Housing Authority and the same was delivered to the Defendant's solicitors.

36. During cross-examination by the Plaintiff, DW1 did not recall that his solicitors did explain to him when the assignment was to take effect. He also mentioned that since he was involved in another sale at the same time, his recollection could have been mixed up. He further said that he only signed the documents and his solicitors would follow up the technical matters.

37. It is quite natural that the technical matters would be left to solicitors who were paid to attend to such matters. I do not believe that DW1's solicitors had explained to him that the assignment was to be executed in escrow. The evidence of DW1 is not helpful in determining the manner of execution.

38. Further, I cannot ignore the agreed fact that DW1 got a cheque in payment for the balance of the purchase price on the 5th. The keys to the said premises were delivered to the Defendant's solicitors on the 5th. These are acts inconsistent with the suggestion that the assignment and hence the completion was executed in escrow. The burden rests on the Defendant to prove on the balance that it is an execution in escrow.

39. The deed itself is not helpful. It only said that the parties intended the date of the assignment to be on the 6th. They would wish the date to be on the 6th. But what are the bases for saying that? What had been discussed? I was not told of any discussion of delaying the completion. In fact, the Defendant's solicitors in their letter to DW1's solicitors reiterates that the completion should be on 5th. Without some clarification from DW1's solicitors, the Defendant do not have evidence to support his claim that the document was executed in escrow, least to say that they then intended the assignment to be effective on the 6th.

40. From this Deed of Rectification, at the highest, DW1 is estopped from denying the sale. But if the assignment is void, it remains void and DW1 has to re-assign the title to the Defendant. It is difficult for the Plaintiff to compel DW1 to assign again and the Plaintiff should be required to take up such difficulty. With these facts before the Plaintiff's solicitors, I cannot say that they are unreasonable in refusing to accept the argument that the assignment should be dated the 6th.

41. The only conclusion I have is that the Defendant did not answer the requisition raised by the Plaintiff and could not show good title to the Property. The Plaintiff is in breach of the sale and purchase agreement in failing to show a good title before the date for completion. He is not entitled to forfeit the deposit. I therefore give a declaration in terms of prayer 4 of the Statement of Claim and order that the deposit of $110,000 be refunded to the Plaintiff with interest.

42. Further, the Plaintiff should be entitled to recover damages against the Defendant for the said breach of contract. At the beginning of the trial, the Plaintiff confirms that the claims for damages is limited to the refund of deposit, the payment of the agency fees, and the solicitor charges for approving title. For the agency fees of $11,000, it is payable and has been paid upon execution of the formal sale and purchase agreement. The Plaintiff is entitled to recover this from the Defendant with interest.

43. As for the solicitor charges for investigating titles, I agree that the Plaintiff is entitled to recover such charges from the Defendant. But the Plaintiff has not even been able to produce a receipt from his solicitors. He only mentioned in his evidence that he had paid $20,000 to his solicitors. I would be surprised that he was not provided with such receipt. I am not satisfied that on the balance he had proved that he did pay $20,000.00 to his solicitors as charges for investigating titles of the Property. I can only award nominal damages at $100.

44. The counterclaim is dismissed.

45. I gave an order nisi for costs in favour of the Plaintiff with certificate for counsel, such order to be made absolute within 14 days.