ELSUN LTD v. CHIN MARGARET

DCCJ 361/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 361 OF 2008

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JUDGMENT

1.  Elsun (the Plaintiff) is the purchaser and Chin (the Defendant) is the vendor of the middle floor of a 3-storey small village house in Sai Kung, New Territories, under a preliminary sale and purchase agreement in 2007.  Elsun commenced this action essentially for specific performance of the preliminary agreement.  Chin contends that she has exercised her contractual right to cancel the transaction.  Elsun now applies for summary judgment.

BACKGROUND

2.  The preliminary agreement was dated 24 September 2007.  The purchase price was HK$1,920,000.  Initial deposit in the amount of HK$100,000 was paid upon signing of the preliminary agreement.  Parties agreed to enter into a formal agreement on or before 8 October 2007 when a further deposit of HK$92,000 would be paid.  Completion would take place on 5 November 2007 when the balance of the price would be paid.

3.  On 5 October 2007, Elsun’s solicitors requested Chin’s solicitors for the draft formal agreement.  The draft was supplied on 8 October 2007, i.e., the contractual date for signing the formal agreement.  The agreement was not signed on that day; yet Elsun still tendered the further deposit subject to the undertaking of Chin’s solicitors not to release the same to their client unless and until a formal agreement was signed.

4.  The formal agreement was never signed.  Yet the parties chose to proceed.  On 27 October 2007, Chin’s solicitors sent the title deeds and documents in respect of the property to Elsun’s solicitors.  On 2 November 2007, Elsun’s solicitors raised various requisitions.  The requisitions in issue were Nos. 4(b) and 7.

5.  Requisition No.4 consisted of various questions concerning the certificate of exemption attached to the letter from the District Lands Office dated 6 December 1989.  Of them, No.4(b) read:

“We further note that the above Certificate was granted on condition that the lot owner will comply with the terms and conditions in the letter dated 25^th January 1988 governing the lot by the District Lands Officer, Sai Kung.  Please let us have the said letter dated 25-1-1988 for our perusal.”

6.  Requisition No.7 concerned the discrepancy in the identity card number of Chin recorded in various documents.  In the previous formal sale and purchase agreement between Chin and her predecessor in title as well as the preliminary agreement between her and Elsun, the 6^th digit of her ID card number put down was 9.  In the previous assignment by her predecessor-in-title to her, that digit was 8.  Elsun’s solicitors therefore made the following request:

“……Please procure the said Agreement for sale and purchase and the said Assignment with the one which bearing the incorrect identification of your client to be rectified by the Senior Partner of Messrs. Lau, Chan & Ko and return both of them (with one of them duly rectified) to us before completion together with the confirmation letter by the said Senior Partner coupled with copy of the Hong Kong Identity Card of your client for clarification of the discrepancy of the identity of your client in the above documents in order to remove such doubt.”

7.  Hearing nothing from Chin’s solicitors on the scheduled completion date, 5 October 2007, Elsun’s solicitors wrote to Chin’s solicitors to put on record that the requisitions were yet to be answered.  They claimed to be entitled to have 7 working days after the date of receipt of any reply from Chin’s solicitors to raise further requisitions.  Elsun also claimed to be entitled to postpone the completion date to within 7 working days after the requisitions have been satisfactorily answered.  Meanwhile, Elsun’s solicitors sent to Chin’s solicitors a draft assignment for their approval.

8.  Later on the same day, Chin’s solicitors answered the requisitions by letter.  Regarding Requisition No. 4(b), Chin’s solicitors undertook to provide certified copy of the 1988 DLO letter within 7 days from their receipt of the same from the Lands Department.  Regarding Requisition No. 7, Chin’s solicitors wrote:

“The signatures appeared in the Agreement for S&P …… and Assignment …… were identical.  There can be no doubt on the identity of the Purchaser.  However, we shall procure our client to rectify her identity card no. in the said Assignment by initialling the correction.”

9.  On the following day, Elsun’s solicitors replied to the above:

“4(b)  We only accept your undertaking to let us a certified copy of the said letter dated 25/1/1988 within 45 days after completion provided copy of the same shall be produced for perusal/approval of title before completion.

……

7.  We are of the view that the signatures were identical does not exonerate your client’s duty to clarify the doubt of identity in the documents.  Please let us have a certified copy of [the identity card of] your client to confirm the identity card number appearing in the Assignment …… is incorrect first before we accept your undertaking to return to us the Assignment …… duly rectified and initialled by your client and the attested solicitor/senior partners of Messrs. Lau, Chan & Ko within 45 days after completion.”

10.  Later on the same day, Chin’s solicitors wrote further regarding Requisition No.7:

“……We can provide a certified copy of our client’s identity card for your information.  Rectification by way of initialling the correction of her identity card no. in the said Assignment by our client will be sufficient.”

In the meantime, they returned the approved draft assignment to Elsun’s solicitors.  They also asked for the draft undertaking as soon as possible.  No mention was however made in this letter regarding Requisition No. 4(b).  Therefore Elsun’s solicitors wrote to Chin’s solicitors on the same day again.

11.  The next letter from Chin’s solicitors came only about a week later on 12 November 2007.  However by this letter, they claimed that their client instructed them to demand for the return of all the title deeds and documents for onward return to Chin’s mortgagee bank.  They repeated their request on 20 November and 11 December 2007.

12.  On 12 December 2007, Elsun’s solicitors, without prejudice to their client’s position, informed Chin’s solicitors that their client was ready willing and able to complete.  They gave notice to complete by the usual undertakings on or before 24 December 2007.  Time was of the essence. For such purpose, they enclosed the draft assignment (again) and the draft undertakings for the approval by Chin’s solicitors.  They also demanded a completion statement, split cheque instruction and pre-completion inspection of the property.

13.  Amongst other terms, the draft undertakings required Chin’s solicitors to provide several documents within 30 days (i.e., after completion) including the previous assignment to Chin duly rectified and initialled as well as the certified copy of the 1988 DLO letter.

14.  Despite the reminder by Elsun’s solicitors on 22 December 2007, Chin’s solicitors replied that they were still awaiting their client’s instruction.  They gave the same reply on 27 December 2007, i.e., after the last completion date imposed by Elsun.  Yet on 28 December 2007, they informed Elsun’s solicitors that they stopped acting for Chin since then.

15.  The further correspondence between the parties in early 2008 concerned Chin’s request for the return of the title deed and documents for onward return to Chin’s mortgagee bank.  Elsun’s solicitors did so on 21 February 2008.

THE DISPUTE

16.  In court, Mr Yao for Elsun confirmed his client’s stance that it is seeking specific performance of the preliminary agreement.  He abandoned the claim for damages, whether in lieu or in addition.  Chin opposes.  As one can discern from her Chinese affirmations and her clarification in court, she essentially puts forward the following points:

(1) Elsun failed to complete on the scheduled completion date and was guilty of unreasonable delay.

(2) She has already exercised her right to cancel the deal pursuant to clause 18 of the preliminary agreement.  Clause 18  was written by hand in the preliminary agreement:

           “如樓契不完整買賣相方有權取消合約交易”.

THE PRINCIPLES

17.  The court has to determine whether the defence raises real issues in dispute which ought to be tried or there are some other reasons for which the case ought to proceed to trial: O.14, rr.3-4 and O.86, r.4 of the Rules of the District Court.  The test is whether the defence is a credible one but the court will not embark on a mini-trial on affidavits: see Hong Kong Civil Procedure 2008 Vol.1 at 14/4/8-14/4/9 and 86/4/1; The legal principles applicable to an application for summary judgment under O.14 and O.86 are the same: see Super Town Investments Ltd v Ives Development Ltd & Ors, HCA 86/2006, 22 May 2007.

FAILURE TO COMPLETE

18.  The scheduled completion date of 5 November 2007 was not adhered to.  From the correspondence, this appeared to be the result of the requisitions on title raised by Elsun.  The following questions are therefore relevant:

(1) Whether Elsun was entitled to raise requisitions as to title.

(2) Whether the requisitions were reasonably raised and, if yes, whether Chin has satisfactorily answered the requisitions.

Right to raise requisitions as to title

19.  Parties have failed to sign a formal sale and purchase agreement on or before 8 October 2007.  However they were still bound by the preliminary agreement to complete as agreed.  In fact, they did proceed with the transaction in the absence of the formal agreement.

20.  The preliminary agreement provides that the property is to be sold free from encumbrances (clause 3).  By necessary implication, there is an obligation on the part of Chin as the vendor to show a good title: see Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396 at 405.  Mr Yao for Elsun submitted that in the absence of contrary agreement, title should be proved in the manner as stipulated under section 13 of the Conveyancing and Property Ordinance, Cap.219.  I agree with him.

21.  In discharge of her duty as the vendor, Chin has the duty to answer the requisitions and objections as to title.  Such requisitions should be raised and answered within a reasonable time: see Active Keen (above) at 405; 406.

22.  Elsun’s requisitions were raised 3 days before the schedule completion on 5 November 2007.  However, Chin’s solicitors did not supply the title deeds and documents to Elsun’s solicitors until 27 October 2007, which was a Saturday.  Elsun should have a reasonable time to raise the requisitions upon receipt of the title deeds and documents.  In the circumstances, Elsun should not be criticised for being late in raising the requisitions: see Goldmex Ltd & Ors v Edward Wong Finance Co. Ltd [2006] 2 HKLRD 795 at 801B-802B.

23.  Of the requisitions raised, the controversial ones were Requisitions Nos. 4(b) and 7.  Requisition No.4 concerned the certificate of exemption that the DLO gave in respect of the erection of the house.  The certificate stipulated that the exemption of the building works from the provisions of the Buildings Ordinance, Cap.123 was granted on condition that the building to be erected would in all respects comply with the conditions set out in various documents including the 1988 DLO letter.  Requisition No.4(b) related to the conditions set out in this letter that had yet to be provided.

24.  The certificate of exemption is a necessary document for proof of title to a property like the present one: see Lo Chun Tak v Chan Foon Tai [1992] HKDCLR 47 at 49 (lines 31-42).  If the certificate of exemption was granted subject to conditions specifically stipulated in some other documents, these documents were referable as integral part of the certificate.  It was therefore necessary to investigate what they were.  In my judgment, this requisition was as to title and was reasonably raised.

25.  Requisition No.7 concerned the discrepancy in respect of the identity card number of Chin recorded in the title documents.  Such discrepancy should not be considered as immaterial to title.  It was reasonable for Elsun to expect adequate conveyancing evidence to resolve the doubt.  The requisition was a reasonable one.

On the completion date

26.  The answer from Chin’s solicitors came by their letter on the scheduled completion date.  The facsimile record on the letter shows the time of transmission was 4:35 pm, though Elsun’s solicitors claimed to have received it later than that.

27.  Regarding Requisition No.4(b), Chin’s solicitors undertook to provide certified copy of the 1988 DLO letter within 7 days from their receipt of the same from the Lands Department.  In my judgment, an undertaking like this failed to address the concern behind this requisition prior to completion.  Regarding Requisition No. 7, Chin’s solicitors sought to remove the doubt as to the identity of the purchaser in the title deed by comparing the signatures in the documents.  Again I fail to see how this was a satisfactory answer to the requisition.

28.  It is clear to me that Chin has failed to satisfactorily answered Requisitions Nos. 4(b) and 7 on or before the scheduled completion date.  In the circumstances, there is no basis for blaming Elsun for failing to complete on the scheduled completion date.

After the completion date

29.  Neither party sought to cancel the deal notwithstanding the passing of the scheduled completion date.  Instead, their solicitors still corresponded with each other in respect of the outstanding requisitions.

30.  In their letter on the day following the scheduled completion date, Elsun’s solicitors were prepared to agree to an undertaking by Chin’s solicitors to produce a certified copy of the 1988 DLO letter and the previous assignment duly rectified within 45 days after completion if Chin’s solicitors would provide a copy of the letter and a certified copy of Chin’s identity card for their perusal prior to completion.

31.  In their reply on the same day, Chin’s solicitors agreed to provide a certified copy of Chin’s identity card for Elsun’s information; and to procure the rectification of the discrepancy in the previous Assignment.  In the meantime, they returned the approved draft assignment to Elsun’s solicitors and they also asked for the draft undertakings proposed by Elsun’s solicitors.  Clearly Chin still intended to proceed.

32.  However, since nothing was said about the 1988 DLO letter in the above reply from Chin’s solicitors, Elsun’s solicitors asked again on the same day.  Nothing was heard from Chin’s solicitors until a week later when they requested for the return of the title deeds and documents.

33.   Prior to their request for the return of the title deeds and documents, there was no suggestion by Chin’s solicitors that their client was treating Elsun to be in repudiation of the agreement for failing to complete on the scheduled completion date or any other date.  After the completion date, either party was entitled to serve a notice to complete and to make time of the essence again.  Elsun did that.  Despite Elsun’s notice dated 12 December 2007 to complete on 24 December 2007 and numerous reminders, Chin’s solicitors simply replied that they were awaiting instruction from Chin.  Suddenly, they informed Elsun’s solicitors that they ceased to act for Chin.

34.  Now Chin claims to have already exercised her right to cancel the deal pursuant to clause 18 of the preliminary agreement.  Her solicitors also never stated that position at all before.

CLAUSE 18

35.  It is common ground that the agreement was made on what parties also describe as a “必買必賣” basis, namely, there is no condition providing for either of them to back out from the deal on terms, in case either of them fails to perform.  In line with this basis, the standard terms contained in the preliminary agreement (clauses 7 and 8) were deliberately deleted.

36.  The wordings of clause 18, properly construed, also do not confer such right on either party to back out from the deal unilaterally.  The wordings are “買賣相方有權取消合的交易”.  The term “相方” could only be a mistake and should be “雙方” instead.  This refers to both parties.  Had the agreement been that either party still had the right to unilaterally cancel the deal, the clause should have referred to either party or “買賣任何的一方”.

37.  In view of the above, construing clause 18 to give either of Elsun and Chin the unilateral right to cancel the deal would be inconsistent with the parties’ intention.  There is no dispute that there has never been any agreement between the parties to cancel the deal.

38.  Chin has never communicated to Elsun that she sought to exercise the alleged right to cancel the deal pursuant to clause 18.  Chin refers to various correspondence between her and her solicitors and her mortgagee bank in November and December 2007, suggesting that the deal has fallen through.  While Chin’s solicitors requested Elsun’s solicitors to return all the title deeds and documents, they made no suggestion in the correspondence that Chin has unilaterally cancelled the deal pursuant to clause 18 or for any reason.  No mention was ever made regarding the deposit that Elsun has paid to Chin.  The fact is that as at today, Chin is still holding the deposit.

39.  Even assuming that clause 18 afforded the right to unilaterally cancel the deal, the clause might be invoked only “如樓契不完整”, i.e., if the title deeds were incomplete.

40.  Insofar as the 1988 DLO letter is concerned, Chin’s solicitors never suggested the non-existence of this letter.  On the contrary, they undertook to provide it.  In offering this undertaking, Chin’s solicitors did not indicate at all whether they have already requested for the copy of the letter or when they expected the letter to arrive.  The fact was that they have never at any stage suggested either the impossibility or any difficulty in obtaining a copy of the letter from the authority.  Chin fails to show that the title deeds were incomplete as a matter of fact.

41.  The same is even truer insofar as Chin’s identity card is concerned.  Elsun’s solicitors last requested for a certified copy of Chin’s identity card prior to completion before they agreed to accept an undertaking by Chin’s solicitors to provide the rectified assignment after completion.  Chin’s solicitors also agreed but have eventually never done so.  There was again no suggestion of either the impossibility or any difficulty in providing copy of Chin’s identity card or the previous assignment duly rectified.  There was again no question of incomplete title deeds as a matter of fact.

OTHER ALLEGATIONS

42.  Chin also raised argument about alleged non-payment of stamp duty by Elsun.  This is factually incorrect and in any event irrelevant.  She also argued that Elsun has also purchased the other floors of the same house and therefore should be satisfied with the title of her property.  Even assuming that that happened, I do not agree that that absolves her from the obligations owed to Elsun under this agreement.  There is also allegation of dishonesty or ulterior motive behind Elsun’s delaying the completion.  In my view, the position of the parties was adequately evidenced by the contemporaneous correspondence between their solicitors.

CONCLUSION

43.  In my judgment, Chin was not entitled to cancel and had never validly or effectively cancelled the transaction as alleged.  By her stance, Chin has simply evinced an intention not to be bound by the preliminary agreement.

44.  By his notice to complete and the present action, Elsun opted not to terminate but to press on the performance of the agreement.  There is no suggestion or evidence to show that specific performance should not be ordered in the circumstances of this case.

45.  In line with the minutes of order with some slight amendments, I order:

(1) that the agreement in writing dated 24 September 2007 mentioned in the writ of summons be specifically performed and carried into execution;

(2) that Chin do pay Elsun its costs of this action, including this application and costs of this order, such costs to be summarily assessed by the Master in chambers or alternatively to be taxed, with certificate for counsel;

(3) that the said costs when assessed or alternatively taxed be deducted from the amount of the balance of purchase price to be paid by Elsun and the net balance certified;

(4) that it appearing that Elsun has accepted the title of Chin to the property comprised in the agreement subject to Chin duly discharging the legal charge/mortgage in favour of HKCB Finance Limited, Chin do within 7 days after service upon her of this Order execute all necessary documents for the purpose of carrying this Order into effect, including the execution of an assignment of the property as an escrow such assignment to be in the form of the draft assignment which is exhibited as “WWHD-8” to the Affirmation of Wong Wang How Dennis affirmed herein;

(5) that upon Elsun paying to Chin the net balance so certified at the office of Messrs. Gary Mak, Dennis Wong & Chang, Elsun’s solicitors, at 4^th Floor, China Insurance Group Building, 141 Des Voeux Road Central, Hong Kong at a date and time to be fixed by the Court, Chin do at the same time and place redeem the said legal charge and deliver to Elsun the said assignment so executed and the legal charge duly receipted and discharged and all other deeds, writings and documents of title in her possession or power relating solely to the property;

(6) that Chin thereafter give to Elsun vacant possession of the property;

(7) that the parties are to be at liberty to apply to carry this Order into effect.

46.  The preliminary agreement should be construed in its English version in case of ambiguities (clause 17).  English was also the language used in the correspondence between the parties’ solicitors and the requisitions as to title.  During the hearing, Chin indicated she understands some English.  I therefore give this judgment in English.  In case Chin requires, interpreter’s assistance could be arranged when the judgment is handed down.

Representation: