XCHRX CHENG JUI LUNG KRIS AND ANOTHER v. PERFECT BEST LTD.

HCA 1347/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A1347 OF 1998

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J U D G M E N T

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1. By an agreement dated 16th October, 1997, the plaintiff agreed to buy and defendant agreed to sell the premises of flat D on the 27th floor, of block 2 of Royal Ascot, in the New Territories (hereinafter called the property) at a price of HK$8,100,000. In pursuance of the terms of this agreement, the purchaser paid the vendor the total deposit of $810,000. The balance of the purchase price was payable on completion. The agreement was in the usual form and contained the usual clauses commonly found in nearly all sale and purchase agreements of flats in Hong Kong. It contained the term that time shall in every respect be of the essence of the agreement. It also provided that the payment of the balance of the purchase price would have to be made by either a cashier order issued by a licensed bank in Hong Kong or a cheque drawn by a firm of solicitors in Hong Kong. The agreement also provided that completion shall take place at the office of Messrs. Yip, Tse & Tang, solicitors at Units C, D & E 20th floor, China Overseas Building, Hennessy Road, Wanchai, Hong Kong on 24th January, 1998 between the hours of 10.00 a.m. to 1.00 p.m. Clause 19 of the agreement further provided:

"19. The Purchaser is aware that the Property is at present subject to the Mortgage/Legal Charge (if any) more particular described in Part VII of the First Schedule hereto in favour of the Mortgagee therein mentioned. The Vendor hereby undertakes to discharge the said Mortgage/Legal Charge/and Further Charge at the Vendor's own costs and expenses on or before completion of the sale and purchase herein and the Vendor further undertakes not to further charge or incumber the Property after signing of this Agreement".

2. The property was indeed mortgaged to the First Pacific Bank Limited and the particulars of the Legal Charge in its favour were set out in Part VII of the First Schedule to the agreement.

3. After the agreement the parties proceeded with the investigation of title and everything went on normally. The title deeds were sent on 21st October, 1997. The purchasers' solicitors raised requisitions on title by letter dated 27th October, 1997. The request was responded to on 18th November, 1997 and yet again on 2nd January, 1998.

4. On 21st January, 1998 the purchasers' solicitors wrote to the vendor's solicitors saying:

"Entirely without prejudice to our requisitions previously raised and entirely without prejudice to our client's right to raise further requisitions, we are now writing to you informing your client that our clients require formal completion to take place on 24th January, 1998.

Please advise your client to get everything ready for formal completion."

5. There was no dispute that this letter was sent to the vendor's solicitor's office at about 4.27 p.m. and a fair copy of this letter reached the vendor's solicitor's officer at 4.52 p.m. on 21st January, 1998. There was also a second letter dated 21st January, 1998 sent to the vendor's solicitors concerning the evidence on the payment of government rent and enclosing a copy of the draft assignment for the vendor's solicitor's approval. The draft was sent without prejudice to any requisitions raised or to be raised.

6. On 22nd January, 1998 the vendor's solicitors wrote to give the purchasers' solicitors split cheques instruction on completion. They further enclosed a copy of a letter dated 22nd January, 1998 from the First Pacific Bank Ltd. for the purchasers' solicitors' reference. The letter was addressed to the vendor's solicitors telling them the amount required for redemption made up to 26th January, 1998 and the break down thereof. The letter also asked the solicitors to confirm the figure with a certain staff at a given number. The letter went on to say "Upon receipt of redemption money for the full amount by our Bank, we shall then have the Discharge/Release executed and returned for your further handling." This would appear to be a standard form letter given by the mortgagee bank to its solicitors. In fact the vendor's solicitors had received one similar letter dated 17th October, 1997 giving the redemption figure as on 17th October, 1997. It is common ground that the vendor's solicitors were also appointed solicitors for the mortgagee bank in relation to the discharge of the mortgage.

7. In reply to this letter on 23rd January, 1998, the purchasers' solicitors wrote to inform the vendor's solicitors that the purchasers would be attending the vendor's solicitors' office at 12.30 p.m. on 24th January, 1998 and would bring along with them the assignment, and 3 cheques drawn by solicitors. The amount and payee of each of the cheques were given. There was no dispute that these particulars were correct.

8. The vendor's solicitors sent a letter dated 23rd January, 1998 in reply. There is no dispute that this letter albeit dated 23rd January, 1998 only reached the purchaser's solicitors' office at 9.20 a.m. the next day, 24th January, 1998, being the date of completion. The letter confirmed that 2 directors of the vendor would attend their office to execute the assignment and to deliver the keys of the premises on completion. The letter went on to say:

"2. We may not be able to arrange the existing mortgagee, First Pacific Bank Limited to execute the discharge but as you may know we acted for them in the discharge and have the authority to receive the redemption money for and on its behalf.

3. We further offer our personal undertaking to arrange our client, First Pacific Bank Limited to execute a valid discharge to complete the legal documentation against our acceptance and receipt of the redemption money. The discharge will be delivered to you forthwith upon our receipt of it and in any event not later than 21 days from 24th January, 1998.

4. In addition, our client authorized us and we hereby undertake to your client that the balance of purchase price will be held by us and not to be released to them until and unless we have sent you the discharge."

9. The proposal to give an undertaking to arrange the bank to execute a discharge and to deliver the same to the purchaser's solicitors upon receipt and in any event within 21 days was not acceptable to the purchasers. This was made clear by a letter sent by return at 9.30 a.m. on 24th January, 1998. The letter made it clear that the purchasers would insist on the vendor to hand over on completion the discharge duly executed by the Bank. There were further exchanges of letters in that morning over this same subject matter. Suffice is for me to say that the attitude of both parties had not changed.

10. The purchasers attended the vendor's solicitors' office at 12.30 p.m. on 24th January, 1998 together with a partner of their solicitors and also another member from another solicitors firm. They brought along the cheques for completion and also the assignment. From the evidence before me, it is plain that the attitude of the purchasers was that the purchasers would only hand over the cheques to the vendor or its solicitors against the delivery of the assignment and the duly executed release. The vendor's attitude was adequately reflected in a letter which their solicitors handed over to the purchasers when they arrived or shortly thereafter. The letter said:

"We are instructed to request your client to tender to us the balance of purchase price against which we shall:-

1. Forthwith deliver the redemption money to the bank for the redemption of the mortgage.

2. Forthwith let you have the duly executed assignment and the keys of the premises and the existing mortgage.

Our client will try through us to procure the bank to execute the discharge and deliver it to you before 1.00 p.m. today."

11. Not surprisingly there was no completion. After the purchasers left the vendor's solicitors wrote to the purchasers' solicitors recording what took place in the completion meeting. The letter recorded the offer made by the vendor and the purchasers insistence that simultaneous to the payment, the vendor had to let the purchaser have the discharge/release duly executed by the bank.

12. I recite the letters and the events in details because this is an application for summary judgment. In the event of any dispute on facts which are relevant to the determination of the issues, then plainly there can be no summary judgment.

13. In Hong Kong, completion normally take place by way of undertaking. This general practice was also enshrined in the Law Society's circular 91/82 issued on 28th December, 1982, paragraph 12 of which read:

"12. It will be assumed that completion will take place by way of undertaking unless the solicitors concerned notify the other side in good time that standard undertakings will not apply and that formal completion is required. In all cases, the right to require formal completion remains, but in such event, as a matter of professional courtesy, a solicitor should use every endeavour to give at least three working days' notice before the date fixed for completion."

14. Notwithstanding the strong custom, it is nevertheless well established that save for cases where the contract provides expressly to the contrary, a purchaser is entitled to refuse to pay the purchase price due on completion except against delivery to him the duly executed assignment and where the vendor has mortgaged the property, also the duly executed release or discharge of the mortgage. This proposition of law is well established by 2 privy council decisions (see Edward Wong Finance Co. Ltd. v Johnson Stokes & Master [1984] 1 A.C. 296, 304F-305B, 307E-F, 309B-D; Chong Kai Tai v Lee Gee Kee [1997] HKLRD 461 466J-467B, 467F-J). Of course in the present case, the vendor had further expressly undertaken by clause 19 of the agreement to discharge the mortgage on or before completion. Thus in my view, plainly the vendor was not entitled to insist that the balance of the purchase price should be paid against the delivery of the assignment and an undertaking to deliver the duly executed release or discharge.

15. Was there any triable issue on whether there was any term in the contract which would enable the vendor to merely give an undertaking to deliver the release or discharge? Plainly the mere fact that the general practice in Hong Kong is that completion is by way of undertaking would not be sufficient to found an implied terms to oust the right of the purchaser to formal completion. Furthermore the fact that the Law Society circular 91/82 recorded that as a matter of courtesy the vendor's solicitors should be given 3 working days notice before completion if the purchaser should desire formal completion could not vary the right of the purchaser under the contract. Indeed counsel for the vendor did not seek to argue that there was any implied term that the vendor must be given 3 working days notice before the purchaser was entitled to have formal completion. However he submitted that the purchasers' conduct in this case in giving less than 3 working days notice was a matter which I should take into account when I consider the issue of sharp practice and unconscionable conduct. I will deal with this point later.

16. The vendor however argued that the facts of this case did give rise to a triable issue that there was a variation or waiver of the purchasers' right to demand the physical delivery of the release or discharge against the payment of the balance of the purchase price. It was argued that because the vendor's solicitors had sent to the purchasers' solicitors a copy of the letter of the First Pacific Bank Ltd. dated 22nd January, 1998 when they gave the split cheque instruction, the purchasers were put into notice that the bank was only willing to execute the release when they received the redemption money from the solicitors. Hence when the purchasers' solicitors wrote to the vendor's solicitors on 23rd January, 1998 telling them that the purchasers would come at 12.30 p.m. on 24th January, 1998 together with the assignment and the cheques drawn in the manner as directed, the purchasers must be taken to have accepted the bank's stipulation that the bank would only execute the release upon receipt of the redemption money from the bank's (and also the vendor's) solicitors. It was also contended that at least there was a triable issue as to whether this was so.

17. I do not think that this argument was sound. I cannot see how it could be said that by enclosing the bank's letter of 22nd January 1998 it could ever be suggested the purchasers ought to be aware that the vendor was suggesting that no release would be delivered against the payment of the balance of the purchase price. Even if it could be so suggested, I do not think that it was arguable that the purchasers had accepted such suggestion. The purchasers having intimated in clear term that they wanted formal completion, it was for the vendor to arrange the mortgagee or its duly authorized agent to be present at the completion meeting to execute the release or the discharge against the payment of the redemption money. In my view, any reasonable purchaser would only understand the purpose in enclosing the bank's letter as a kind of evidence or confirmation of the redemption figure quoted by the vendor's solicitors. Indeed, it is notable that it was never alleged by the vendor or its solicitors that the purchasers had either agreed to vary the method of formal completion demanded by them or waive their right to formal completion in relation to the release. Nor was it ever suggested in correspondence that by enclosing the bank's letter the vendor had ever proposed to the purchaser that completion should take place with the purchaser only getting an undertaking to deliver the release in exchange of the payment of the balance of the price. If the vendor had ever intended to make such counterproposal to the purchasers by sending along the bank's letter, it would be surprising that the vendor's solicitors would subsequently write to say that "we may not be able to arrange the existing mortgagee, First Pacific Bank Limited to execute the discharge...", and to offer to give a personal undertaking to deliver the duly executed release forthwith upon receipt from the bank and in any event within 21 days.

18. The purchasers' attitude was firm and consistent through out. Since 21st January, 1998, they always insisted on their right to have the assignment and release against their payment of the balance of the purchase price. I do not think that there was any triable issue on any variation or waiver of their contractual right.

19. Counsel for the vendor further submitted there was an implied term that the vendor and the purchaser were obliged to co-operate to effect completion. If the failure of the vendor to complete was attributable or party attributable to the conduct of the purchaser, the purchaser would not be allowed to rely on the vendor's default as justification for calling off the contract. He relied on the decision of China Pride Investment Ltd. v Silverpole Ltd. [1994] 2 HKC 341, 355C-I; 356 A-I, 360B-D, 361B-F in support of his proposition. I do not think that the proposition that the vendor and the purchaser both owed each other a duty to co-operate would extend to require either party to give up his contractual right in order to facilitate the other side to complete the contract. In the present case, the purchasers had a right to demand the delivery of the release against the payment of the balance of the purchase price. It is for the vendor to make sure that he was in a position to deliver to the purchaser the title which he had contracted to sell to the purchasers. It is for it to make the necessary arrangement to make sure that the release was available when the purchasers paid the price. The vendor could for instance ask the mortgagee or its duly authorized agent to be present in the completion meeting, or ask the mortgagee to execute the release in escrow so that the solicitors could exchange it for the redemption money. If its own mortgagee was difficult or uncooperative, I do not see how it could be said that the purchasers owed him a duty to co-operate with him to give up the purchasers' right to the delivery of the release in the formal completion.

20. It was also vaguely argued that the conduct of the purchasers in this case was tricky and was sharp practice. It was suggested that the purchasers were simply trying to get out of the contract when the price of the property had fallen sharply. It was also pointed out that the offer made to the purchasers by the vendor's solicitors was fair and reasonable and the purchasers would not be in any way prejudiced by agreeing to accept the arrangement offered. Even assuming that all these criticisms were sound, I still do not see any ground for denying the purchasers what they were entitled to under the contract. There is simply no equity in this court to enable me to give the vendor any relief or to deny the purchasers any of their contractual rights.

21. Finally, it was argued that there was at least a dispute on facts as to whether the purchasers had shown the vendor the cheques they brought along for completion. It was said that unless they had done so and unless they had purported to tender the cheques, the purchasers had not yet performed their part of the bargain in completion and consequently the purchasers were not entitled to the delivery of the assignment or the release. It was argued that in such situation, neither party was entitled to call off the contract and time ceased to be of essence after the completion date. Reliance was placed on the decision of the court of appeal in Camberra Investment Ltd. v Chan Wai Tak [1989] 1 HKLR 568 574B-E.

22. I am of the view that the present case was quite different from the facts of the Camberra case. There on the day of completion, the purchaser did not turn up with the money. All that he did was to tender a personal cheque which the court held to be not a valid tender. It is to be noted that there was no clause in the contract to provide that payment could be made by personal cheque in that case. On the part of the vendor, the vendor was not available to execute the assignment after 1.30 p.m. on the date of completion while the court held that in the absence of any special provision in the contract, the purchaser had the whole of the day of completion to complete. In these circumstances, the court of appeal held that the purchaser could give a reasonable notice to complete after completion date. However in the present case, even assuming that the purchasers did not show the cheques to the vendor (a fact which I must assume to be correct for the purpose of summary judgment application), I do not think that the purchasers would be prevented from treating the vendor's conduct on 24th January, 1998 as an act of repudiation of the contract and accepting such repudiation to terminate the contract by their solicitors' letter of 26th January, 1998. It was plain from the vendor's conduct on 24th January, 1998 that the vendor would not be prepared to deliver to the purchasers the release upon receipt of the cheques from the purchasers because the vendor was not in a position to do so. As I have held that the vendor was not entitled to insist on payment without the delivery of the release, I am of the view that the purchaser was entitled to treat the vendor's conduct as a repudiation of the contract (see Link Brain Ltd. V Fujian Finance Co. Ltd. [1990] 2 HKLR 353). In any case, I am of the view that having come with the cheques and having made it clear that the purchasers were prepared to release the cheques subject to the condition that the vendor must deliver over the assignment and release, there was a sufficient tender in the present case.

23. I have great sympathy for the vendor. I do not think that the vendor was personally at fault in this case. I do not know why it was not possible for the vendor's solicitors to arrange with the mortgagee bank to execute the release to be held by them in escrow pending the collection of the redemption money, or to arrange a duly authorized officer or attorney of the bank to attend the completion meeting to execute the release upon receipt of the redemption money. Nor do I know any reason for the vendor's solicitors not being able to ask the bank to authorize them in the capacity of the solicitors acting for the bank in the discharge to sign a valid receipt for the redemption money. Had this been done, the discharge or release could proceed by way of a receipt endorsed on the mortgage in pursuance of Section 56 of the Conveyancing and Property Ordinance and there was no need for any formality of the execution of a release under seal. I am not at all impressed by the conduct of the purchasers. Other than hoping that the vendor would not be able to arrange for the execution of the release contemporaneously with the payment of the balance of the purchase price in the completion meeting on a Saturday so as to enable them to get out of the contract in a falling market, I do not see any other good practical reason for the purchasers' not accepting the proposals of the vendor. I am even less impressed by the conduct of Raymond Cheung Chu Man, the consultant of the solicitors firm Messrs. Raymond Cheung & Chan for the part he played in coming along to the completion meeting and secretly tape recorded the meeting without informing the vendor's solicitors of his doing so. Even if the purchasers were concerned to have a true record of what transpired in the meeting, I do not see any reason why Lee Yee Hung (a partner of Y.H. Lee & James To) and Raymond Cheung should not inform the vendor's solicitors that they were so concerned and had arranged to have the meeting recorded. However their conduct played no part in my decision in this case.

24. The purchasers had the law on their side. There will be judgment for the plaintiff for the declaration that the agreement dated 16th October, 1997 had been validly rescinded by the plaintiff. The plaintiff is also entitled to a declaration that the defendant was not entitled to forfeit the $810,000 deposit paid by the plaintiff. I will also order that the defendant to repay the plaintiff the sum of $810,000 with interest at judgment rate from 27th January, 1998 to payment. As no claim of damages was pleaded in the statement of claim and no particulars of damages was pleaded, I will not award any damages. The Defendant's summons of 14th July, 1998 is dismissed.

25. In relation to cost, I have to bear in mind that the defendant was successful in objecting to the filing and the use of the 2nd affirmation of Law Ching Man. The argument on that issue had taken up some 45 minutes. As the argument for the whole summary judgment application was completed well within the scheduled time, I do not think the argument concerning the affirmation had increased the cost of the hearing. Accordingly I will order that the plaintiff shall have the cost of the action save that the plaintiff is not entitled to have any cost of and concerning the 2nd affirmation of Law Ching Man.