Grandyield Knitters Ltd. v. M. B. E. Engineering Ltd.

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Civil Action No.11136 of 2000

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Judgment

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Causes of Action

1. The plaintiff and the defendant entered into a provisional sale and purchase agreement ( the "agreement" ) of two parking spaces, No.69 and No. 69A in a car park of the housing estate of Mei Foo Sun Chuen. Later while the solicitors were in the process of drawing up the formal agreement, the purchaser plaintiff found out that the car parking space No.69A was in the common area and the defendant was therefore in no position to pass any title to car park 69A. The plaintiff rejected the defendant vendor's offer to return the deposit of $45,000. The plaintiff contended that it was entitled to liquidated damages of the same amount on two grounds. Firstly, it was alleged that it was induced into entering into the agreement by the misrepresentation of the defendant. Secondly, it was alleged that the defendant was in breach of the implied term of the agreement that the defendant could convey good title.

Misrepresentation

2. Before entering into the agreement on behalf of the plaintiff purchaser, PW1 had made a land search and could not find any record of car parking space No.69A. She raised a query and a joint inspection of the car parking spaces at the site was done again. As a result PW1 was satisfied that car parking space No.69A existed physically. I accepted her evidence she was not only concerned about the use of the car parking space No.69A but the title to use it. For this she mentioned to DW1, the defendant's representative, her concern that she could not find any record in the land search. In response to this and in order to convince her there would be no title problem he produced the demand for rates and told her that the management company had issued tickets for that car parking space. It is not in dispute that PW1 was not quite satisfied with the title problem and insisted that words "69A" be inserted into the agreement.

3. What DW1 said about parking tickets and rates demand is true. There was no misrepresentation in that. As far as the assurance that there would be no title problem, it was clear that PW1 was not relying on that. She said more than once in evidence she would leave the title matter to the solicitors. Furthermore it is because of the reservation she had about the representations made to her about the title that she insisted on inserting words "69A" into the agreement to make her point that the subject-matter of sale and purchase was two parking spaces and not one. She wanted to protect her interest and the interest of the plaintiff. After inserting those words she was satisfied the plaintiff was protected and only then she entered into the agreement. In these circumstance I find that she was not induced into entering into the agreement by the misrepresentation. The claim on misrepresentation must fail.

Breach of Implied Term

4. There is no dispute or question that there was an implied term for the defendant vendor to be able to convey good title. The defendant had no title in respect of car parking space No.69A to pass and must have been in breach of the implied term. Counsel of the defendant argued that the two parking spaces should be looked at and treated as one subject-matter. She therefore argued that it is not the case that the defendant had no title to pass. Be that as it may, the defendant's title relating to these two parking spaces is nonetheless defective and the defendant was in breach of the implied term.

Defences

5. One of the defences pleaded is that PW1 should not have insisted on inserting the words 69A into the provisional agreement. I do not quite understand what the complaint is. In any event quite properly this point was not pursued fervently at the trial. It is only right for PW1 to insist on adding those words before signing the agreement. If inserting those words is not acceptable, DW1 should have refused to sign the agreement. Once he agreed to the insertion, I do not see what defence the insistence on the part of PW1 can constitute.

6. Another defence pleaded and argued is that the plaintiff knew that car parking space No.69A was not on any land search record and should be estopped from insisting on defendant showing good title. The fact that there was no land search record car parking space No.69A was made known to the defendant before the agreement was signed. Yet DW1 believed that there was no title problem and assured PW1 of it. By signing the agreement the defendant agreed to convey good title. Under these circumstances no estoppel could have arisen against the plaintiff.

7. The other defence is that if the plaintiff proceeded to purchase car parking space No.69, it could have the use of car parking space No. 69A. The right of the defendant to use car parking space No.69A is not certain if there is any, and admittedly whatever this right is, it cannot be conveyed or assigned to the plaintiff. The risk of the owner of car parking space N0.69 not being allowed to use car parking space No. 69A is substantial. In any event the defendant was unable to show good title to the property described in the agreement whether or not the car parking spaces are one property or two properties.

8. The defence also argued that the defendant made a mistake about title. The defendant should have found out that mistake quite easily especially when the plaintiff expressed its concern. There is no ground to allow the defendant to escape liability under the agreement. Furthermore the defendant could have theoretically cure the defect of the title by acquiring properly the right to use car parking space No.69A. This the defendant would not do and the plaintiff was entitled to accept the repudiation.

9. The defence also relied on the condition 7(2) of the Conveyancing And Property Ordinance which was incorporated into the agreement by general reference. The said ordinance does not limit or restrict freedom of contract. It is a question of construction of the agreement. In the instant case the agreement clearly provide for damages in case of breach. This express term must prevail over the condition 7(2).

10. The remaining question is damages. The defence argued that the purported liquidated damage clause was a penalty clause. I was asked to look into the plummeting property market and the fact that the plaintiff did not suffer any loss. In my judgment these are irrelevant factors in determining whether the specified sum is liquidated damages or penalty. The specified sum is the same amount of deposit which is 10% of the property value and is accordance with the common practice in the Hong Kong property market. This is clearly a genuine pre-estimate of damages and I rule that it is liquidated damages.

Orders

11. I give judgment for the plaintiff in the sum of $90,000 and interest as claimed. The plaintiff is entitled to its costs and accordingly I make an order nisi in its favour with certificate for counsel. Such costs be taxed if not agreed.