HEALTH BASE INTERNATIONAL LTD v. HUI CHIU YUEN

DCCJ 3297/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3297 OF 2006

(transferred from HCA 20058/1998)

______________________

______________________

JUDGMENT

1.  In 1997, the Defendant (Hui) acquired the right to a village type house to be built in Tuen Mun, New Territories.  The Plaintiff (HB) wanted to acquire Hui’s right to the house.  They entered into a written agreement for the transfer of such right.  There is dispute as to whether the transfer was completed and who was in breach.  Hence this action.

BACKGROUND

2.  The house to be built for Hui belonged to a development by Homeast Development Limited (Homeast).  Wai Sing Property Consultant Company (Wai Sing) was an estate agent involved in promoting the sale of the houses in the development.  Through Wai Sing, Hui agreed to purchase (or subscribe) from Homeast the house (to be built) at HK$3.7 million.  The agreement was dated 4 January 1997 (the Subscription Agreement).

3.  Pursuant to the Subscription Agreement, Hui paid Homeast HK$370,000 being the 10% deposit.  He would be required to pay the balance of the purchase price by instalments at different stages of the construction.  Construction was expected to commence in early March 1997.

4.  By then, HB had already purchased (or subscribe) from Homeast another house in the same development.  Now HB wanted to acquire the right to Hui’s house as well.  Through Wai Sing, HB entered into a Chinese agreement dated 6 April 1997 with Hui for the transfer of his right to his house to HB (the Transfer Agreement).

5.  There were the following essential terms of the Transfer Agreement:

(1)	The purchase price was HK$4.3 million being the original price of HK$3.7 million with HK$600,000 added on top (clause 1).
(2)	The deposit was 10% of the original price, i.e., HK$370,000 (clause 2).
(3)	HB and Hui agreed to attend the office of Homeast on 7 April 1997, i.e., the following day, to complete the transfer (clause 3).
(4)	From the transfer, Hui would be earning the price difference of HK$600,000.  HK$150,000 of that would be payable on 7 April 1997.  The balance shall be paid to Hui by instalments of HK$150,000 each on 30 April, 15 May and 30 May 1997 respectively (clause 8).
(5)	After the transfer, HB would take over the obligation to pay the balance of the original price of HK$3.7 million to Homeast under the Subscription Agreement (clause 5).
(6)	In case of HB’s default, Hui would be entitled to forfeit the deposit.  In case of Hui’s default, HB would be entitled to the return of deposit plus compensation in the same amount.  In either case, there would be no more claim against the other (clause 4).

6.  There is no dispute that HB did pay Hui the deposit of HK$370,000 and the price difference of HK$600,000.  HB’s case is that the parties did not complete the transfer on 7 April 1997 or at all.  Failing to comply with HB’s ultimatum to complete the transfer in December 1997, Hui repudiated the Transfer Agreement.  HB accepted such repudiation.  HB now claims for the return of the HK$970,000 and damages.

7.  Hui contended that the transfer was completed.  It happened on 7 April 1997 as agreed at the office of Homeast where Madam Tang of HB and Madam Tsang Yung Tai of Wai Sing were present.  The director of Homeast, Siu Yuk Lun, gave his verbal consent to the transfer.  By that, Hui considered that he had discharged his contractual obligations and the rest were mere formalities solely between HB and Homeast.  His further involvement was out of courtesy.  In the same month, Hui obtained the written consent of Homeast to the transfer.  At HB’s request, Hui and Homeast also prepared executed blank agreements to facilitate HB’s future sale of the right to Hui’s house.  However HB had repeatedly refused to complete the transfer, whether to HB or its further buyer.  Since September 1998, Homeast had requested Hui to pay the further instalment of balance of the purchase price under the Subscription Agreement.  In default, Homeast allegedly forfeited the deposit paid by Hui under the Subscription Agreement.

8.  Hui therefore says that HB was in breach of the Transfer Agreement.  By his latest amendment to the pleading (during trial), Hui now claims to set off the HK$970,000 (which HB claims) by the amount of his loss, namely, (a) the price difference of HK$600,000 which he would have earned from the transfer to HB and (b) the HK$370,000 deposit forfeited by Homeast.

ISSUES

9.  I shall consider the above allegations of the parties under the following 3 main issues:

(1)	Whether the transfer was completed at all.
(2)	If not, whether it was HB or Hui who was in breach.
(3)	The question of remedies.

WAS THE TRANSFER COMPLETED

The cheques

10.  Hui relied heavily on the fact that HB had paid the HK$600,000 price difference to him.  This, he suggested, could have happened only upon HB’s satisfaction that the transfer was completed on 7 April 1997 as agreed.  I do not agree.

11.  The deposit for the Transfer Agreement was in fact paid in 2 parts.  There is no dispute that HB paid through Wai Sing part of the deposit in the sum of HK$100,000 on or about 1 April 1997.  The balance of the deposit, HK$270,000, was paid by cheque dated 7 April 1997.  According to Hui, this cheque was tendered only after the meeting on 7 April 1997.  If what he said were correct, HB would have failed to tender the balance of the deposit in whatever form notwithstanding the signing of the Transfer Agreement on 6 April 1997.  This did not seem to be in line with the parties’ contemplation that the 10% deposit was payable upon the Transfer Agreement (clause 2).  If the cheque for the balance of deposit were given only after the meeting on 7 April 1997, I wonder how the number of that cheque managed to be recorded on the Transfer Agreement (clause 2) on 6 April 1997.

12.  Hui raised dispute as to whether the date of 6 April 1997 appearing on the receipts he signed for the cheques existed at the time of signing.  Madam Tang was not the one who signed the Transfer Agreement on behalf of HB or tendered the cheques.  In court, she conceded that the date could have been put down by her husband for record after the receipts were signed by Hui.  There is no misleading element as alleged.

13.  The fact, as Mr M Wong for Hui acknowledged, was that the cheques were tendered in a batch on either 6 or 7 April.  In my judgment, the cheque for the balance of the deposit was also post-dated and tendered together with the other post-dated cheques for the price difference upon the signing of the Transfer Agreement on 6 April 1997.

Honouring of the cheques

14.  Hui also argued that had HB considered that he was in breach, HB would or could have stopped the cheques after 7 April 1997.  In my view, unless HB had considered such failure to complete on 7 April to amount to Hui’s repudiation and chose to accept that and thereby terminated the Transfer Agreement, HB could not have stopped the cheques without somehow risking being held to be liable for repudiation of the Transfer Agreement (clauses 3 and 8) instead.  Madam Tang indeed said that HB would not want to be sued as a result of any attempt to stop the cheques.

15.  It should be noted that the parties must have contemplated no difficulty in completing the transfer and hence the fixing of the completion date on the day immediately following the signing of the Transfer Agreement.  That also explains why HB would be prepared to tender all the cheques (though post-dated) for the HK$600,000 price difference to Hui upon the signing of the Transfer Agreement.  The fact that the transfer was not completed on the following day as agreed did not necessarily cause HB to think that this would not be happening within reasonable time or at all.  Madam Tang effectively said that she still believed the transfer would be completed.

16.  The fact was HB did not act on the failure to complete the transfer on 7 April 1997.  So long as parties were willing to proceed, any party could make another time for completion essential.  HB did so.  By letter dated 28 November 1997 to Hui (through Wai Sing), HB set the deadline for completion on 12 December 1997.

The alleged verbal consent

17.  According to his first formal reply to HB’s solicitors in November 1998 and his early versions of pleading, Hui requested HB through Wai Sing to complete the transfer only after he had managed to cash HB’s last post-dated cheque on 5 June 1997.  He did not mention any meeting or verbal consent or completion on 7 April 1997.  I do not believe the fact that Hui was then without legal representation suffices to explain his leaving out at that stage this apparently significant part of his case, if that was true.

18.  Hui had been referring to his application for consent by letter dated 10 April 1997 and Homeast’s written consent dated 20 April 1997 though.  However neither document made any mention of any prior meeting or verbal consent on 7 April.  Not only did Homeast write that it came to know about the intended transfer from Hui to HB only upon receipt of Hui’s application, it also requested Hui to make an appointment with HB to attend the office of Homeast to complete the transfer.

19.  The transfer of name contemplated by the Transfer Agreement must mean the replacement of Hui by HB as the purchaser (or subscriber) under the agreement(s) between Homeast and Hui.  This was also Hui’s understanding.  In his application to Homeast dated 10 April 1997, Hui suggested cancellation of his agreement(s) with Homeast so that HB would replace him as the purchaser (or subscriber) of his house.  It is therefore inherently difficult to understand how Hui considers that the transfer was completed by mere verbal consent from Siu of Homeast.

20.  Homeast did not seem to consider that HB had already become the new purchaser of Hui’s house either.  Otherwise, Homeast should have asked HB to pay the second instalment of the balance of the purchase price under the Subscription Agreement.  Instead, Homeast asked Hui for that in October 1998.

The so-called agreements in blank

21.  According to Hui, the request for the so-called agreements in blank was made because HB wanted to save the transfer fee and commission payable on the future sale of the right to Hui’s house.  HB denied the allegation.

22.  The so-called blank agreements were the standard subscription agreements used by Homeast for Hui’s house.  However they are problematic.  The copies disclosed by Hui were confusing.  The one disclosed to HB bears the date of 25 January 1998 which transpired to be subsequently added by Hui himself for some reason.  More importantly, Homeast remains the vendor appearing on the front page of these agreements whereas Hui signed as the vendor and Homeast signed as the witness on the second page.  Wai Sing, which was supposed to be the witnessing estate agent, retained its chop on the document.  The price remained HK$3.7 million.  I wonder how they could have worked for any new purchaser of HB as alleged.  I do not accept such execution was merely a mistake committed at the same time by Hui, Siu and Wai Sing.  I am sceptical about how these documents came to exist.  I can hardly place any weight on them as documentary evidence of Hui’s allegations.

Ulterior motive

23.  Hui, and Mr M Wong on his behalf, further suggested that HB was just trying to extricate itself from the falling property market and therefore sought to escape from the deal.  However the contemporaneous documents reflect the contrary.  In September 1997, Homeast through its solicitors sought to terminate the agreement with HB regarding the sale and purchase of the other house subscribed by HB.  In October 1997, Homeast even returned the deposit to HB.  Not only did HB refuse to accept that, it also, in fairly strong terms, urged Homeast to commence construction of the houses.  In November 1997, HB, as mentioned above, wrote to Hui demanding and giving him time to complete the transfer.  In doing so, HB had to be prepared that Hui might just comply within the time given.  These did not reflect an evasive attitude of HB towards the deal as alleged.  Nor did HB appear to have the idea of backing out from the acquisition of the houses in the development.

Tsang’s evidence

24.  Tsang testified.  Contrary to what she and Hui stated in their statements, Tsang said in court that she in fact did not attend the alleged meeting at the office of Homeast on 7 April.  She said it was her colleague Madam Li.  However she could not verify this or what she stated in her statement.  When pressed, she became evasive and claimed no impression about documents and events.  I agree with the observation of Mr T Wong for HB that Tsang was unhelpful and unreliable at all as a witness.  I place no weight on her evidence insofar as it is intended to corroborate Hui.

No completion on 7 April 1997 or at all

25.  Madam Tang’s evidence might not be flawless.  Mr T Wong for HB accepted that.  Yet comparing with Hui and Tsang as witnesses, and after seeing how they gave evidence in court, I come to the conclusion that Madam Tang’s evidence is on balance preferable.

26.  All the circumstances cause me to believe what Madam Tang said in court that the appointment to meet Siu at Homeast’s office on 7 April 1997 was not successful.  There was never completion of transfer of Hui’s right and obligations under the Subscription Agreement to HB, whether on 7 April 1997 or at all.

WHICH PARTY WAS IN BREACH

27.  I reject Hui’s allegation that it was HB which repeatedly refused to complete.  I reject his allegation that HB requested for the so-called blank subscription agreement pending HB’s search for a further buyer of the right to Hui’s house.  I accept Madam Tang’s evidence that HB repeatedly sought to complete the transfer with Hui through Wai Sing in vain.

28.  HB sent the ultimatum to Hui in November 1997 effectively making the deadline of 12 December 1997 for completion essential.  HB accepted Hui’s repudiation by letter dated 15 December 1997.  The letter was sent to Hui through Wai Sing.  HB repeated its position by letter dated 13 February 1998 after it managed to ascertain the 2 addresses of Hui.  The letter was sent by registered post to the 2 addresses of Hui.  In his reply to HB’s solicitors in November 1998 and his early version of defence filed with the High Court in January 1999, Hui acknowledged receipt of documents from Wai Sing and HB’s letter.  Neither Hui nor Tsang could not be relied on in casting doubt on whether the correspondence reached Hui.

29.  In any event, HB should only have expected completion within a reasonable time.  Whether Siu of Homeast and Wai Sing had any part to play in contributing to the failure is not relevant to HB’s position and in any event cannot be ascertained.  According to Hui, Siu has passed away and Wai Sing has ceased business.  There was letter from Hui in 1998 purporting to invite HB to complete the transfer.  But as Mr T Wong for HB pointed out, this should be viewed with scepticism in the light of the incompatible deadline he imposed on HB and that by Homeast on him by then.  In his recent pleading, Hui alleged that even after the commencement of the action, he and Homeast still offered to complete the transfer with HB by January 1999.  At the commencement of the trial, Mr M Wong for Hui withdrew this as a pleading by mistake.  The genuineness and effectiveness of such alleged invitations to complete the transfer are simply doubtful.

30.  I find that it was Hui who repudiated the Transfer Agreement which HB accepted in late 1997 to early 1998.

REMEDIES

31.  The Transfer Agreement (clause 3) limited the compensation to HB to the return of the deposit (HK$370,000) plus another HK$370,000.  I can understand its operation in a case where no part of the purchase price has been paid and the parties’ resort to effectively liquidated damages.  However HB had paid the entire consideration which Hui expected to obtain under the Transfer Agreement.  In my judgment, there should be no doubt that HB should have its money back in the circumstances of this case.

32.  The Transfer Agreement provided that the defaulting party shall be responsible for paying both parties’ commission to Wai Sing (Remark 2).  HB did not appear to be pursuing the claim in this regard.  In any event, HB must be aware of the limit of this court’s jurisdiction.

33.  HB did not get to derive any benefit or shoulder the burden under the Subscription Agreement.  Therefore, HB could not be to blame for Homeast’s enforcement against Hui, whether as alleged or at all, as a result of Hui’s own default.  There is no basis for considering the set off pleaded by Hui.

ORDER

34.  I enter judgment in favour of HB for the amount of HK$970,000.

35.  There has been much delay in the proceeding of this case since its commencement in the High Court in 1998.  In particular, not much has happened since 2000 until the case was transferred to the District Court in June 2006.  I exercise my discretion to award interest on the abovementioned amount at half the judgment rate from the date of writ in the High Court to today (but excluding the period between March 2000 and May 2005), and thereafter at the judgment rate until payment.

36.  HB shall have costs of this action, including any costs reserved, to be taxed if not agreed.  For clarity, I certify the engagement of counsel.  The costs order is nisi and shall become absolute in the absence of appointment to argue in 14 days.