PROMOTION BUS LTD v. CHAN SIK PING AND ANOTHER

HCA 1467/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1467 OF 2011

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BETWEEN

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J U D G M E N T

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Introduction

1.  Before me is an application for summary judgment.

2.  The action is in relation to certain agreements for the plaintiff to buy and the defendant to sell 9 buses.  Completion of the sale failed to take place on the completion date stipulated in the agreement, nor on a subsequent date named in correspondence by the defendant giving 3 days of notice to the plaintiff to complete the purchase.  The defendant by notice on the subsequently named completion date terminated the agreement and forfeited the deposit paid.  The plaintiff took out the present action claiming for, inter alia, specific performance, or delivery up and/or transfer of the buses together with the corresponding passenger service licences, alternatively for the return of the deposit and for damages for wrongful repudiation.

3.  The summons for summary judgment was issued on 27 September 2011, within a month of the issue of the writ endorsed with the statement of claim.  Prior to the issue of the Order 14 summons no defence has yet been filed.

4.  For the purpose of the application for summary judgment, the plaintiff has indicated that paragraphs 1 to 5 inclusive of the prayer for reliefs in the statement of claim are not pursued.  In essence, the substantive reliefs sought by the plaintiff are now confined to the return of the deposit and damages.

Undisputed Facts

5.  The following are undisputed facts gleaned from the Statement of Claim and the inter partes correspondence in evidence:

(1) That there were 3 preliminary sale and purchase agreements all dated 13 April 2011 (“the Preliminary Agreements”) to sell a total of nine specific buses together with their passenger service licences (客運營業證) owned respectively by the two partners of the defendant as individual.

(2) The parties to and the principal terms of the Preliminary Agreements are as follows –

Buyer	Seller	Qty	Consideration	Date of completion
Plaintiff	Gee Lok Sze Hidy	1	HK$2.2.M	22 June 2011
Jumbo Bus services Company Ltd	Chan Sik Ping	3	HK$6.3 M	30 April 2011
Plaintiff	Gee Lok Sze Hidy	5	HK$10.0 M	30 April 2011

(3) It is an express term under the Preliminary Agreements that the respective vendor shall provide the respective purchaser the necessary transfer documents to facilitate the completion of the registration of the transfer with the Transport Department.

(4) Pursuant to the three Preliminary Agreements, a total of HK$1,000,000 was paid over to the vendor as deposit.

(5) The defendant and the plaintiff subsequently entered into another agreement dated 30 April 2011 (“the Consolidated Agreement”) consolidating the sale of all 9 buses under the same agreement between the defendant as vendor and the plaintiff as purchaser.  The consideration for the sale and purchase remains unchanged, but the date of completion of the sale was postponed to 30 June 2011.

(6) There was no correspondence exchanged between the parties after the date of the Consolidated Agreement until 29 June 2011, two days before the new completion date under the Consolidated Agreement.  In the letter of 29 June 2011, the plaintiff’s solicitors wrote to Messrs Tang & Tang who acted for both parties under the Consolidated Agreement, asking them to “clarify the details of the procedures and steps already or to be taken by the vendor for effecting the transfer of the said 9 buses and the said passenger transport business including the right to carry out the said government contracts to our client …”, and to “clarify and explain the mode to be adopted for the transfer of the said 9 buses and the said passenger transport business including the rights to carry out the said government contracts … including … information on the current assets and liabilities of the vendor, etc…”.

(7) A series of exchange of correspondence ensued.  No completion took place on 30 June 2011.  On 13 July 2011, the vendor’s solicitors, Messrs. Ko & Chow provided a substantive reply to the matters raised, and alleging that there was no further information or document outstanding, except the relevant Notices of Transfer of Ownership of a Vehicle would only be executed and delivered to the purchaser’s solicitor upon proof of payment of the balance of the purchase price in full.  In the same letter, the defendant’s solicitors demanded the production of documentary proof within 3 days that the plaintiff did have the necessary financial resources to complete the purchase “as at 30^thJune, or alternatively, as at the date of this letter”, and that upon such proof, the defendant would complete the sale and purchase as per the procedure described in the letter.

(8) The plaintiff asked for 14 days to respond to the letter of 13 July 2011 but only a 7-day period was acceded to.  On 20 July 2011 the plaintiff’s solicitors wrote back asserting that under the Consolidated Agreement the defendant was not entitled to see documents relating to the financial resources of the plaintiff, and that such documents were in any event confidential.  A reply by 28 July 2011 was then proposed.  By a further letter of 20 July 2011 in response to the defendant’s pressing for proof of financial capability to complete, the plaintiff asserted that it had “indeed obtained financial support from financial institutions including Dah Sing Finance Limited as well as other investors”.  No documentary proof was provided.

(9) In a letter dated 21 July 2011, the defendant’s solicitors rejected the absence of financial proof, re-iterating that they were ready to proceed to completion once proof is available, and extending the deadline to 28 July 2011 for such proof to be tendered.  There was no reply to this letter.

(10) The defendant’s solicitors by letter dated 29 July 2011 named 12 noon 1 August 2011 as the completion deadline, warning that failure to complete would result in forfeiture of the deposit paid.

(11) The plaintiff’s solicitors replied by letter dated 30 July counter-proposing to have completion take place at noon on 19 August 2011.  A copy letter from De Vere Jewellery (H.K.) Limited, a purported investor, was attached as documentary proof of the plaintiff’s financial resources “as a gesture of goodwill and sincerity”.

(12) By a letter dated 1 August 2011, the defendant’s solicitors rejected the counter-offer, and insisted on completion on 1 August 2011.

(13) No completion took place at or before noon on 1 August 2011.

(14) By a 2^nd letter dated 1 August 2011, the defendant’s solicitors on behalf of the defendant terminated the sale and purchase agreement and forfeited the deposit.

(15) By a letter dated 6 August 2011, the plaintiff’s solicitors reiterated that the notice of termination was unreasonable and alleging failure to provide necessary information in advance, namely, details of the existing mortgage arrangement of the subject vehicles so that the purchaser’s financial institution can arrange for the repayment of the vendor’s mortgage directly.  It was asserted that “the trade’s practice” was “to complete the conveyancing of vehicles by redeeming your client’s mortgage of the vehicles by our client’s mortgaging financial institution … direct”.  They then gave notice to complete “on the fifth working day after receipt of the said mortgage details”.

Terms of the Preliminary Agreements

6.  Clause 2 of each of the Preliminary Agreements provide as follows –

“2) 買賣雙方於運輸署發出批准過戶信後，買方須盡快往運輸署辦理過戶手續，而賣方必須提供運輸署所須文件予買方辦理過戶，買方必須為賣方完成現有餘下的政府合約。”

7.  Clause 4 of the agreement enumerates 6 types of documentation required to be provided by the vendor to the purchaser to enable the purchaser to complete the process of the transfer of the vehicle licence and the passenger service licence, as well as a certificate regarding the previous ownership of the vehicle for the purchaser to arrange for finance.

Terms of the Consolidated Agreement

8.  In the preamble of the Consolidated Agreement it is stated that the parties have agreed that the vendor (the defendant) will transfer the partnership business of the vendor carried on under the name of “Professional Company (專業公司)” to the purchaser (the plaintiff), together with the goodwill of the said partnership business and all rights and interests and benefits of the business upon the completion of the sale and purchase of the buses.

9.  The Consolidated Agreement contains, inter alia, the following terms –

“5. On completion [the vendor] shall put the [the purchaser] into possession of all documents capable of being transferred by delivery and shall execute all documents necessary (at the expense of [the purchaser]) to transfer those which cannot be transferred by delivery and shall do all other things reasonably required by [the purchaser] to vest the said 9 buses in the name of [the purchaser] and give [the purchaser] full benefit of this agreement.

6. [The vendor] shall, on or before 30^th day of June 2011 (hereinafter called “the date of completion”)

(a) discharge all debts and liabilities of the said partnership business incurred up to and including the date of completion and shall indemnify [the purchaser] against non-payment of all such debts and liabilities and all actions proceedings costs claims and demands in respect thereof; …

7. The sale shall be completed on 30^th day of June 2011 at the office of Messrs Tang & Tang, solicitors at which time and place [the vendor] shall at the expense of [the purchaser] execute and do all such deed and acts or things as may be necessary and proper for the vesting in [the purchaser] the full benefit of this Agreement and every part thereof and shall assist [the purchaser] in all aspect to procure the transfer of the vehicle licences and any other documents (if any) in the name of the [the purchaser] …

10. In the event of [the vendor] failing to complete the sale in accordance with the terms hereof, all moneys paid by the purchaser to the vendor pursuant to the provisions of the Agreement shall be returned to [the purchaser] who shall also be entitled to recover from [the vendor] damages (if any) which [the purchaser] may sustain by reason of such failure on the part of [the vendor].”

Principles applicable to Summary Judgment Application

10.  The following are well-established principles on applications for summary judgment –

(1) The defendant may show cause against the plaintiff’s application by demonstrating that he has a good defence on the claim on the merits, or that a difficult point of law is involved or a dispute as to the facts which ought to be tried, or “a fair probability or reasonable grounds that a bona fide defence exists”: Hong Kong Civil Procedure 2013 §14/4/2; Toy Major trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345, per Ma CJHC.

(2) In considering whether there are triable issues, the Court will not take the alleged defence on face value but will test it against the evidence disclosed in the affidavit.  The Court will also consider the inherent probability of the defence, but would refrain from conducting a mini-trial on complicated factual issues: Cheung JA in Paul Y Management Ltd v Eternal Unity Development Ltd [2008] HKEC 1359 at §19.

(3) A complete defence need not be shown.  The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial, and leave to defend ought to be given unless there is clearly no defence in law such as could have been raised, or no possibility of a real defence on the question of fact: Hong Kong Civil Procedure 2013 §14/4/9.

Whether the Preliminary Agreements Remained in Effect

11.  It is an issue in dispute whether the three Preliminary Agreements were superseded by the Consolidated Agreement.  The plaintiff argues that the Preliminary Agreements continued to apply alongside the Preliminary Agreement.  The defendant, on the other hand, argues that the Preliminary Agreements were superseded by the Consolidated Agreement, and the latter was the only binding contract prior to its termination on 1 August 2011.

12.  The significance of this issue turns upon the plaintiff’s plea that the defendant has “failed or refused” to provide the plaintiff with “the necessary documents for completion, including but not limited to the documents referred to under §6(3) of the Statement of Claim”, in terms which were extracted from clause 4 of each of the Preliminary Agreements.

13.  The defendant disputes the presence of such an obligation.  The defence case is that under the Consolidated Agreement, what it was obliged to provide to facilitate transfer of the vehicles and their corresponding passenger service licences upon payment of the full purchase price have either been duly provided well before the date of completion, or would be provided upon completion, which was what clause 5 of the Consolidated Agreement required.

14.  In §§ 14-15 of the Statement of Claim the plaintiff also referred to “repeated demands and requests” for the allegedly outstanding documents, which the defendant also disputes.

15.  The defendant relies on the contents of the letters from the plaintiff’s solicitors as referring only to the Consolidated Agreement, and the evidence contained in the Affirmation of Yuen Yuk Tong Harry made on behalf of the plaintiff where he explained at length that the Consolidated Agreement became necessary due to the plaintiff’s inability to obtain funds in time for the original completion dates.  Such evidence was said to be consistent with the provision in Clause 19 of the Consolidated Agreement making the plaintiff bear the costs thereof.  Inferences were sought to be drawn from such evidence as to the status of the latter agreement in the eyes of the plaintiff and its solicitors.

16.  In view of the parties’ conflicting stance on the status of the Preliminary Agreements, and in particular on the applicability and compliance of Clause 4 of the Preliminary Agreements, I do not find it appropriate for this court to conduct a mini-trial of the evidence or to decide on which view of the evidence to prefer.  This is an issue to be resolved at trial.

Whether the Defendant has Provided the Necessary Information to the Plaintiff

17.  This is one of the most contentious issues in the action, and is at least partly dependent on any finding to be made at trial on the preceding issue identified.  On the one hand, the plaintiff argues that its failure to complete on the stipulated date was due to the defendant’s default in providing the information it was contractually required to provide.

18.  Further, one of the reasons the plaintiff relies on to say the notice to complete on 1 August 2011 is unreasonable is that the defendant was the party in default, and was not entitled to give such notice in an attempt to make time of the essence for completion under the Consolidated Agreement: Halsbury’s: as of Hong Kong, Vol 7 (2007 Re-issue) [115.292] and [115.296].  In Green v Sevin (1879) 13 Ch D 589, the long delay caused by the vendor disentitled him to limiting time for completion to a short interval in a notice to complete.

19.  On the other hand, the defendant reads the late query of 29 June 2011 as but an excuse to delay completion, and that it was a complaint without substance to forestall completion in the absence of sufficient funds to complete.  It stands by its substantive response to the query raised as contained in the letter of 13 July 2011, and rely on the absence of any further issue or questions raised on procedure as indicating that the last-minute query was disingenuous.  The defendant further relies on the evidence of Tse Kwan Yin that between 27 to 28 June 2011, Mr Yuen of the plaintiff has informed him that the plaintiff had not been able to obtain the necessary financial assistance from finance companies to fund the purchase.  Mr Tse’s evidence was that he was surprised to learn about the plaintiff’s query on procedure for completion and transfer as Mr Yuen was known as an experienced businessman in the field with particular experience in this type of transactions in the past.  On the other hand, Mr Yuen denies that he or his brother has ever spoken to Tse on 27, 28 or 30 June 2011.

20.  In view of the above, I am unable to dismiss this issue as not a triable one.  I also bear in mind that there was no exchange of correspondence in the weeks running up to 29 June 2011 on the topic. The affidavit evidence did not help make the issue any less triable.

Alleged Trade Practice regarding Discharge of Vendor’s Mortgage

21.  The plaintiff pleads in §§13(2) and (3) of the Statement of Claim and relies on the existence of a practice in the trade to complete the conveyancing of vehicles by redeeming the vendor’s mortgage of the vehicles by the purchaser’s mortgaging financial institution directly.  This is disputed by the defendant, whose evidence is that the practice was for the respective finance companies of the purchaser and the vendor to liaise between themselves to settle any outstanding sum.  Extensive conflicting evidence were filed by both parties on this topic.

22.  Further, the defendant regards this as yet another excuse put up to delay completion.  The defendant points out that this alleged default was not even referred to in the letter of 29 June 2013, and therefore could not have been the real reason for not completing.  The Court’s attention was drawn to the six letters that followed dated between 30 June 2011 to 3 August 2011, where the vendor’s mortgage or the necessity for related information was still not raised.  The allegation of default in this regard was only first raised in a letter dated 6 August 2011.

23.  The alleged practice in the trade is relied on as the foundation of the requirement for the details of the existing mortgage arrangement of the subject vehicles to be tendered prior to completion.  The existence of such a practice is hotly disputed.  The related commercial efficacy of the practice as alleged by the plaintiff is not apparent on the conflicting evidence.

24.  I find that the existence or otherwise of the alleged trade practice, and the precise scope of the requirement with regard to provision of related documents to the purchaser as is alleged to arise by implication, are yet further issues which ought to be tried.

Whether the Defendant was Entitled to Insist on Completion on 1 August 2011

25.  This issue turns upon whether the notice to complete given on 29 July 2011 was reasonable.  The plaintiff’s case, as set out in §19 of the Statement of Claim, is that it was plainly unreasonable due to –

(1) The shortness of time and the venue and manner of completion not having been agreed; and

(2) The fact that the defendant was in default of providing necessary documents for processing transfer, and regarding their mortgage arrangements.

26.  As said in Crawford v Toogood (1879)13 Ch D 153 at 158 (per Fry J), when a notice purports to make time of the essence, the question is whether that notice was or was not a reasonable one.  The question of reasonableness must be determined as at the date when the notice is given, and the court must consider the state of things when the notice was given.  It is also necessary to consider what remains to be done to complete the purchase.

27.  In my view, the events as reflected in the inter partes correspondence leading up to the giving of the notice are all relevant circumstances to be taken into account.  In my view the correspondence exchanged between the parties’ solicitors between 29 June 2011 to 21 July 2011, and the lack of any meaningful response to the 21 July 2011 letter, was evidence capable of being relied on to demonstrate that there was simply no expectation of the necessary financial means in sight for the plaintiff to be able to complete the purchase, and the plaintiff was merely buying time indefinitely.

28.  The main complaint is about the shortness of time.  As regards venue and manner of completion, I do not see they are factors that will tip the balance on reasonableness.

29.  The contemporaneous correspondence shows that the agreed completion date was forestalled by a last-minute lengthy general inquiry on procedure that came as a surprise.  When the query was responded to substantively, the defendant also afforded the plaintiff the opportunity to demonstrate that there was a genuine intent to complete and the query was not just stalling tactic.  However, the plaintiff sought an unduly long period for responding.  When the moderately extended deadline came on 20 July 2011, the plaintiff cited other reasons for not providing such proof.  When pressed further on the same day, the plaintiff made some bare assertion of availability of financial support with no documentary proof at all.

30.  On the day prior to the date of the notice to complete, a 7-day period giving the plaintiff yet another opportunity to tender proof of its means to complete the purchase had again expired.  There was no reply to this last invitation.  The notice to complete within 3 days was issued in those circumstances.

31.  I have already found that the allegations of default in providing various documents on the part of the defendant are triable issues, as is the existence and purport of the alleged trade practice giving rise to an implied obligation to produce some of them.  When the correspondence exchanged between the parties is considered in the light of other points under the preceding headings, it is clear that there are triable issues as to the reasonableness of the notice bearing in mind the then current state of affairs.

Whether the plaintiff is entitled to rely on the defendant’s alleged act of repudiation of 1 August 2011

32.  Finally, the defendant argues that the act of repudiation now relied on by the plaintiff was an alleged breach that was not accepted by the plaintiff.  By a letter dated 2 August 2011, the plaintiff’s solicitors purported to name a new completion date of 19 August 2011.  When that was rejected on the basis that the agreement was at an end since 1 August 2011, a further letter was written in response proposing completion 5 days after provision of the documents said to be necessary.

33.  In the circumstances, the defendant says that it was no longer open to the plaintiff to rely on the unreasonable completion notice and forfeiture of the deposit as acts of repudiation.

34.  I am prepared to accept that this is an arguable defence on the merits that the defendant should be allowed to explore at trial alongside other issues.

Conclusion

35.  It follows that the plaintiff is not entitled to summary judgment.

36.  The defendant urges upon me that it is a case where no application for summary judgment should have been taken out, and invite me to dismiss the summons with costs.  Alternatively, it is said that the application should not have been proceeded with once the defendant’s evidence has been read.

37.  If the matter is one in which the plaintiff ought to have known before the issue of the summons that the defendant has an arguable defence that would entitle it to unconditional leave to defend, he cannot properly invoke the jurisdiction of the court under O 14 to give him summary judgment, for neither he nor anyone on his behalf can make the affidavit in support stating that “in his belief there is no defence to the claim…”: Hong Kong Civil Procedure 2013 Vol 1 14/7/3.

38.  In the present case, most if not all of the parties’ respective arguments and the stance they take in respect of the matters in dispute were extensively set out and rehearsed in the series of correspondence exchanged prior to the date of the writ.  There were serious disputes over the issues, which were known to the plaintiff and those acting on its behalf.  While the plaintiff may take a certain view on the reasonableness of the notice of completion, it was not unknown to them that the facts and circumstances against which reasonableness is to be judged were in dispute.

39.  In the circumstances of this case, I am driven to the view that it is not an appropriate application to be made under O 14, and the jurisdiction of the court to grant summary judgment ought not to have been invoked.

40.  The plaintiff’s summons is dismissed.

41.  There will be a costs order nisi for the costs of this application to be paid by the plaintiff to the defendant, with certificate for Counsel.  I would also order gross-sum assessment pursuant to O 62 r 9A, and for this purpose I give leave to the defendant to file its Statement of Costs within 14 days hereof, and for the plaintiff to file its Statement of Objections within 7 days thereafter.