KIU WAI MING v. NG CHEK KOK

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JUDGMENT

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Clough, J.A.:

1. This is the judgment of the court.

2. The defendant, Mr. Ng Chek Kok ("the purchaser") appeals against the summary judgment under Order 86 given against him by Deputy Judge Jerome Chan on the 21st May 1991 in favour of the plaintiff, Mr. Kiu wai Ming ("the vendor"). By that judgment the vendor obtained declarations confirming that he had duly rescinded an Agreement ("the Sub-sale Agreement") made between the parties on the 2nd February 1991 for the sub-sale and purchase of a flat in a property called Pacific View, No. 38 Tai Tam Road, Hong Kong, that he had duly forfeited a deposit of $308,000 paid by the purchaser thereunder and that he was entitled to re-sell the flat and its parking space (i.e. the relevant undivided shares in Pacific View giving rise to exclusive possession of the flat and parking space).

3. The vendor had contracted to purchase the flat from Cherry Land Company Limited ("the original vendor") under an Agreement ("the principal Agreement") made on the 18th October 1989. At the time of the Principal Agreement Pacific View was under construction and by clause 3(c) the original vendor contracted to complete the building work on or before the 28th February 1991 subject to extensions of time provided for in clause 3(iv). In the events which have happened the time for completion was determined by clause 4(i) which provided for completion within 14 days of the vendor being notified by the original vendor, in effect, that the occupation permit relating to the flat had been issued and that there had been compliance with all formalities necessary to permit the assignment of the flat to the vendor.

4. However, the vendor (who paid an initial deposit of $267,940) was obliged under the Principal Agreement to pay the balance ($2,411,460) of the purchase price on or before the 3rd November 1989 (clause 2 and the Fifth Schedule). He in fact paid the balance of the purchase price on the 9th November 1989, having raised the necessary funds by creating an equitable mortgage of his interest in the flat under the Principal Agreement. Under clause 10(i) the vendor was entitled to sub-sell the flat before completion and under clause 5 the original vendor undertook to execute "a proper assurance" of the flat to the vendor, his nominee or sub-purchaser.

5. It seems from paragraphs 6 and 7 of the purchaser's draft defence and counterclaim, and from the correspondence, that on the 14th January 1991 the vendor and purchaser made a provisional agreement for the sale and purchase of the flat which was subsequently superseded by the sub-sale Agreement pursuant to clause 31 of the latter agreement. The provisional agreement was followed by a letter dated the 16th January 1991 from the purchaser's solicitors to the vendor's solicitors requesting the documents of title of the flat and a draft Sub-sale Agreement. On the next day the vendor's solicitors wrote to the original vendor's solicitors requesting the relevant documents of title when available and a copy of the principal Agreement. On the 18th January the vendor's solicitors replied to the purchaser's solicitors' letter dated the 16th January, enclosing the draft Sub-sale Agreement for their approval and indicating that the documents of title would be sent as soon as they were in hand. On the 24th January the vendor's solicitors sent the principal Agreement to the purchaser's solicitors.

6. On the 25th January 1991 the occupation permit relating to the flat was issued. On the same day the purchaser's solicitors sent the vendor's solicitors a cheque for $258,000 by way of deposit together with an amended version of the proposed Sub-sale Agreement which had been executed by the purchaser. During the next few days correspondence followed between the solicitors concerning the amendments, culminating in agreement and the execution of the Sub-sale Agreement dated the 2nd February 1991.

7. By the combined effect of clause 2 and Part IV of the Schedule to the Sub-sale Agreement the purchaser was required to pay a price of $3,080,000 by payment of:

8. However, the 13th February was not the date stipulated for completion. By the combined effect of clause 3 and Part III of the Schedule to the Sub-sale Agreement the completion date was the date to be specified by the original vendor's solicitors (under clause 4(i) of the Principal Agreement mentioned above) as the last day for completion of the principal Agreement. There are indications of inconsistency with clause 3 and Part III of the Schedule, regarding the date for the payment of the balance of the purchase price, in clauses 3 (completion), 15 (vendor's solicitors to be his agents for receipt of all moneys due to the vendor) and 29 (vendor's solicitors to retain as stakeholders pending completion the amount of all deposits paid by the purchaser to ensure that those amounts and the balance of the purchase price will be sufficient to redeem the mortgage affecting the flat). All these clauses are framed in terms referring to payment of the balance of the purchase price on completion, but, as the judge pointed out, this seems to have been the result of the mindless adoption of standard clauses. On appeal no point was taken on these inconsistencies by Mr. Denis Chang, Q.C. (who did not appear below) for the purchaser.

9. Under clause 4 the vendor was expressly required to make a good title to the property. Clause 5 was in the usual form, requiring the purchaser to deliver requisitions or objections in respect of the title to the vendor's solicitors within 7 days after delivery of "title deeds" and giving the vendor the usual right to annual the sub-sale and return the deposit on 7 days notice in the event of his being unable (on reasonable grounds) to comply with the purchaser's requisitions or objections or of the vendor's title proving to be defective.

10. Clause 10 provided:

11. Under clause 11 the vendor was required to return the deposit to the purchaser if the vendor defaulted in his obligation to complete the sub-sale. Clause 13 made time of the essence of the sub-sale Agreement in every respect. Clause 24 made provision for the consequences of the vendor becoming entitled to rescind the principal Agreement, including the requirement for the vendor, in the event of his rescinding that Agreement, to repay to the purchaser all or such part of the purchase price as should have been paid by the purchaser. Clause 27 declared that the vendor was selling as "a confirmor" and would "accordingly give only the usual limited covenant that he has not incumbered the said premises". Clause 30 provided:

Clause 33 declared the Sub-sale Agreement to be "subject to and with the benefit of" the principal Agreement.

12. On the 7th February the purchaser's solicitors wrote to the vendor's solicitors requesting all the relevant documents of title together with the copy of the Sub-sale Agreement executed by the Vendor. This letter seems to have crossed a letter from the vendor's solicitors enclosing the executed Agreement. On the 8th February the vendor's solicitors again wrote to the original vendor's solicitors requesting the relevant document of title and a copy of the principal Agreement without further delay. On the same day a letter from the vendor's solicitors, in reply to the purchaser's solicitors' letter dated the 7th February informed the purchaser's solicitors of the action taken by the vendor's solicitors, adding that the relevant documents would be sent to the purchaser's solicitors once they were received.

13. By their letter of the 11th February to the vendor's solicitors the purchaser's solicitors referred to their earlier letter of the 8th February and requested certified copies of 14 specified documents relating to the flat. These documents had been requested from the purchaser's solicitors in a letter dated the 8th February from the solicitors acting for the purchaser's proposed mortgagee. On the 12th February the vendor's solicitors replied to the purchaser's letter dated the 11th February, saying ".... we shall send you in due course such copies of documents that your client entitled (sic) under the Sub-Agreement for Sale and purchase". This prompted the following reply in the purchaser's solicitors' letter of the same date:

14. This stance was not acceptable to the vendor whose solicitors made this clear in their letter dated the 13th February, saying:

15. In reply to this ultimatum, on the same day (when payment was due from the purchaser) the purchaser's solicitors invoked clause 4(a) of the Sub-sale Agreement "under which your client is under an express duty to discharge the burden of prove (sic) of his title of the above property." Emphasising the failure of the vendor to respond to the "repeated demands and requests" of the purchaser's solicitors for the relevant documents of title without which neither the purchaser's nor the mortgagee's solicitors could advise their clients that the vendor's title was good, the purchaser's solicitors observed in their letter:

16. This letter concluded by requesting the "views and advice" of the vendor's on the matter as soon as possible. No payment was made by the purchaser to the vendor on the 13th February or thereafter. The vendor's solicitors made no response until the 18th February (upon which date the original vendor's solicitors served a completion notice on the vendor under clause 4(i) of the principal Agreement fixing the 5th March 1991 as the last day for the completion of that Agreement) when they wrote to the purchaser's solicitors, commenting on the purchaser's failure to make payment on the 13th February and saying:

17. The purchaser's solicitors did not accept the validity of this purported rescission by the vendor. By their letter dated the 20th February they invoked clause 29 of the Sub-sale Agreement, contending that the vendor's solicitors held the purchaser's deposit as stakeholders. They contended that the vendor's purported rescission of the Sub-sale Agreement was a wrongful repudiation of the Agreement which they thereby accepted as discharging the purchaser from his obligations thereunder. They concluded by demanding repayment of the purchaser's deposit of $308,000 within 3 days and threatened legal proceedings in default.

18. On the 22nd February the original vendor's solicitors sent copies of the relevant documents of title to the vendor's solicitors.

19. The vendor did not comply with the purchaser's demand for the return of the purchaser's deposit. The sequel was that on the 23rd February the purchaser issued his writ against the vendor in High Court Action No. A1368 of 1991 claiming, in substance, rescission of the Sub-sale Agreement, the return of his deposit and damages. Negotiations followed between the parties. when the negotiations failed the vendor issued his writ in this action on the 19th April indorsed with a statement of claim. On the 20th April the vendor applied for summary judgment under Order 86.

20. The substance of the vendor's pleaded case, which he formally verified in his affirmation in support of his application, was that the purchaser had failed to pay the balance of the purchase price on the 13th February in breach of clause 2 and Part IV of the Schedule to the Sub-sale Agreement (time being of the essence) in reliance upon the wrongful contention, contained in the purchaser's solicitors' letter dated the 12th February, that the purchaser was not obliged to pay and would not pay the balance of the purchase price until the vendor has proved a good title to the property. The vendor affirmed, on the basis of professional advice, that on the true construction of the Sub-Agreement the purchaser had no defence to the action.

21. In his affirmation filed to show cause against the vendor's application for summary judgment the purchaser (who was clearly dealing with forensic matters on professional advice) went so far as to contend that the purchaser had no cause of action. He sought to raise triable issues which were mentioned in his affirmation and pleaded in a draft defence and counterclaim exhibited thereto. In paragraph 5 of his affirmation the purchaser affirmed that the paramount issue in the action arose.

Thus, whilst the purchaser's solicitors' letter dated the 12th February had referred to the vendor's obligation to prove title, the purchaser was here referring to the vendor's obligation to show title.

22. In paragraph 6 the purchaser affirmed:

23. In paragraph 21 of the draft defence and counterclaim it was proposed to plead that the purchaser had been discharged form his obligations under the Sub-sale Agreement because the vendor had "wrongfully refused to show a good title to the property and is therefore in breach of the 2nd Agreement." In paragraph 22 it was proposed to plead further and/or in the alternative that the vendor's solicitors had been wrong in asserting in their letter dated the 13th February that delivery of the relevant documents of title had not been a condition precedent to payment of the balance of the purchase price. In paragraph 23 it was proposed to plead matters relied upon in support of the purchaser's denial of the vendor's assertion (in paragraph 10 of the Statement of Claim) that the balance of the purchase price had been payable by the purchaser on the 13th February. This was the secondary issue mentioned in the purchaser's affirmation and was not a live issue by the time of the appeal.

24. In broad terms the substance of the purchaser's contentions was that the Sub-sale Agreement was to be construed as linking the purchaser's obligation to pay the balance of the purchase price on the 13th February with the vendor's obligation to show a good title, so as to make the obligation of the purchaser to make the payment, in effect, subject to the condition precedent of the performance of the vendor's obligation to show a good title on or before that date. The distinction between the initial duty to show a good title and the ultimate duty to prove that title (see williams on Title, 4th ed., p. 565) seems to have been borne in mind at this stage, although the duty to prove a good title was in fact relied upon in the purchaser's solicitor's letter dated the 12th and 13th February.

25. This court was supplied with a note (signed by the judge) of his short extempore oral judgment. He concluded that the inconsistencies in clauses 3,15 and 29 regarding the date for the payment by the purchaser of the balance of the purchase price were more apparent than real. This conclusion was not challenged on appeal. He appears to have regarded the real triable issue sought to be raised by the purchaser as one of construction, as outlined in the immediately preceding paragraph of this judgment save that he only appears to have considered the matter by reference to the vendor's duty to prove title. The judge felt unable, to accept that there was any evidence of any facts before him to support the construction of the Sub-sale Agreement raised by the purchaser as a triable issue.

26. On appeal his conclusion has been attacked, if we understood Mr. Chang's argument in support of the eight grounds contained in the notice and supplementary notice of appeal correctly, on the grounds that:

(1)    The purchaser's conditional obligation issue

27. In the absence of an express term to that effect we can see no ground for construing the Sub-sale Agreement as being subject to an implied term that the purchaser's obligation under clause 2 and part IV of the Schedule to the Agreement to pay the balance of the purchase price on or before the 13th February 1991 was to be conditional upon the vendor showing or making title on or before that date. The purchaser's obligation was required in unqualified terms to be performed on or before a specified date and time had been made of the essence of the Agreement. The date specified for payment was only eleven days after the execution of the Agreement which contained, in clause 5, the standard provision allowing the purchaser 7 days after delivery of documents of title for requisitions on and objections to title. The same clause allowed the vendor the usual qualified right to annul the sale on 7 days notice if unable or unwilling to comply with requisitions or remove objections to his title. This time scale was inconsistent with an implied term that the vendor was required to show a good title within 11 days of the execution of the Agreement. Mr. Chang was right in criticising the judge's reliance on the proposition that the parties must have realised at the time they made the Agreement that the documents of title might not be "ready" before the 13th February, but the judge was clearly right in attaching importance to the time scale of clause 5.

28. At the date of the Sub-sale Agreement the date for completion had not been determined and by reason of the notice machinery under clause 3 and part III of the Schedule to the Agreement (mentioned earlier in this judgment) that date could not have been contemplated by the parties to be earlier than 14 days after the date (2nd February 1991) of the Agreement. The vendor's duty, under clause 4, to "make" a good title was not, (in accordance with the usual practice) required to be performed on any specified date and it would have sufficed for him to prove his title by the time ultimately fixed for completion. In the event this was the 5th March 1991.

29. No time having been specified for the vendor to show a good title by the production of copies of the relevant documents relating to title (in lieu of an abstract of title in accordance with the Hong Kong practice) there must have been an implied term in the Sub-sale Agreement requiring the vendor to produce the relevant copies of documents within a reasonable time: Williams on Title p.521, Halsbury's Laws of England, 4th edition, Vol. 42, para 106, Emmet on Title, 19th Ed., para 5.062. The ascertainment of that reasonable time must depend on the circumstances of the case and, in our opinion, there can be no reasonable basis for contending that that time is to be controlled and fixed by reference to the date before completion when the balance of the purchase price was payable by the purchaser.

30. Mr. Chang sought to advance an argument based initially on the proposition that this was a case where completion was to be in two stages, the first stage being payment of the purchase price on the 13th February 1991 and the second stage the assignment of the property to the purchaser on the 5th March 1991. We fail to see how this in itself assists the purchaser's argument. The case clearly is one in which the ordinary incidents of completion (involving the purchaser paying the purchase price or the balance thereof and the vendor at the same time assigning the property and delivering possession to the purchaser) have been separated but such a situation is by no means unprecedented (see Halsbury's Laws of England, 4th edition, Vol. 42, para 191), unwise though it may be for the purchaser to part with the purchase price before performance by the vendor of his obligation to show a good title. Such a separation may give rise to questions of construction of references in a contract to the date of completion (c.f. Killner v. France [1946] 2 All ER 83] but it does not in itself provide any basis for supporting the construction of the Sub-sale Agreement advanced on behalf of the purchaser.

31. But Mr. Chang prayed in aid clause 30 of the Sub-sale Agreement which obliged the vendor, upon payment by the purchaser of the balance of the purchase price, to execute an irrevocable power of attorney in favour of the purchaser to execute the subsequent assignment and all documents relating to the property. Mr. Chang emphasised that the payment of the balance of the purchase price was the last substantial act of the purchaser in the transaction and that in this case it entitled him to the vendor's irrevocable power of attorney putting the purchaser in the position to complete on the vendor's behalf. We agree but, this being a situation where the ordinary incidents of completion have been separated under the contract between the parties, we are unable to accept that the machinery of the clause 30 power of attorney in a sub-sale contract provides any support to the argument that the purchaser has raised a triable issue on the purchaser's conditional obligation issue. In our opinion the first ground argued on the purchaser's behalf is without substance.

(2)    Failure to show a good title within reasonable time: implied repudiation by the vendor

32. The distinction between the date when the vendor was required to show a good title (by production of copies of all the documents relating to his good title) and the date (the completion date) by which he was required to make a good title (by proving it as a matter of evidence) does not seem to have been considered in the judgment below and the skeleton argument submitted to this court by Mr. Patrick Fung (who was in the event not called on) on behalf of the vendor only dealt with the question when the vendor was required to make title and relied on the passage on this matter in Halsbury's Laws of England, 4th edition para 42 (cited above) and Boenm v. Wood (1820) 1 Jac & W 419. This is understandable in the light of the reference to proof of title in the purchaser's solicitors' crucial letters dated the 12th and 13th February.

33. However, as indicated above, the purchaser had relied in his evidence before the judge on the alleged failure of the vendor to show title on or before the 13th February and this matter was the main thrust of Mr. Chang's argument on appeal. He contended that there was an issue to be tried here as to what was the reasonable time by which the vendor should have at least shown a good title. He further contended, after reference to the correspondence both before and after the execution of the Sub-sale Agreement, that on the evidence before the judge a reasonable time had elapsed by the 13th February and that the vendor's failure to supply the relevant documents of title prior to that date despite the repeated requests for them by the purchaser's solicitors amounted to a breach of the Sub-sale Agreement.

34. We are unable to accept that there is a triable issue on this question. It seems to us that notwithstanding the several previous requests for production of the vendor's documents of title, a reasonable time for their production had not yet, in all the circumstances, expired by the 13th February 1991. At that time the date for completion of the transaction had not yet been determined by the original vendor's notice under the principal Agreement which would have left a period of 14 days thereafter for completion of the Sub-sale Agreement. There was still, on the 13th February, sufficient time for the vendor to show his title, for the purchaser to exercise his right to take 7 days before submitting any requisitions on or objections to the title and for the vendor to serve his 7 day clause 5 annulment notice if appropriate. Even on the 18th February when the original vendor's completion notice was served and the vendor exercised his right to rescind under clause 10 of the Sub-sale Agreement, there was sufficient time available for the vendor to show a good title and for the purchaser to exercise his right to take 7 days for his requisitions and objections. The fact that the vendor did not obtain the relevant documents until the 22nd February (which would still have left sufficient time for the exercise of the purchaser's rights in the process of showing title) is not material, because there is no evidence that the vendor ever manifested a refusal to show title or complete the transaction, as distinct from failing to show title before the 13th February when the balance of the purchase was due from the purchaser.

35. It may well have been open to the purchaser, by serving a reasonable notice at a reasonable time prior to completion, to make time of the essence of the vendor's obligation to show a good title (c.f. Compton v. Bagley [1892] 1 Ch 313: a case where time was not of the essence of the contract and the 14 day notice served by the purchaser for the service of a proper abstract was served after the date for completion), but this was not done. The purchaser's ultimatum in his solicitors' letter dated the 12th February and the content of their letter dated the 13th February cannot be regarded as constituting such a notice. Furthermore, the failure by the purchaser to serve such a notice was fatal because the vendor never manifested an intention not to perform his obligations under the contract so there can be no suggestion of implied repudiation as occurred in In re Stone and Saville's Contract [1963] 1 WLR 163 (C.A.): see per Upjohn L.J. at p.171.

36. In concluding that the reasonable time available to the vendor for the showing of title by the vendor under the Sub-sale Agreement had not, and could not be even arguably shown at a trial of this action to have expired by the 13th or the 18th February 1991 we have disregarded the fact that the purchaser proposed to raise a mortgage loan in order to pay the balance of the purchase price due on the 13th February 1991. There was no evidence that the vendor was informed of the intended mortgage before the execution of the Sub-sale Agreement and the Agreement itself contains no reference, express or implied, to such a mortgage.

(3)    Relief from forfeiture

37. This issue was only lightly argued by Mr. Chang, citing a passage from Barnsley's Conveyancing Law and practice, 3rd edition, at p. 224 and the dictum of Dillon L.J. in B.I.C.C. PLC v. Burndy Corporation [1985] Ch 232 at p.251 regarding the scope of the court's equitable jurisdiction to grant relief from the forfeiture of proprietary or possessory rights. Mr. Chang informed this court that he understood that the vendor had not yet re-sold the property. He indicated that the purchaser would be prepared to accept, as a condition for relief from forfeiture of his deposit moneys, that he should perform the Sub-sale Agreement. There was no evidence before the judge that the purchaser had tendered the balance of the purchase price and offered to perform the contract. Indeed there is nothing in the purchaser's evidence and draft pleadings or in the note of the judge's extempore judgment to indicate that the purchaser was seeking relief from forfeiture. It is difficult therefore to see how the judge can be faulted at all on appeal for not granting relief.

38. The courts have been disposed to grant relief form forfeiture clauses (regarded as creating penalties which it would be unconscionable to retain) in cases where a purchaser has contracted to purchase land by instalments under an agreement making time of the essence and the vendor has rescinded the contract and forfeited one or more earlier instalment payments upon default by the purchaser in respect of a subsequent payment of an instalment: see Kilmer v. British Columbia Orchard Lands [1913] AC 319 (P.C.); Steedman v. Drinkle [1916] AC 275 (P.C.) which was considered in Stockloser v. Johnson [1954] 1 QB 476 (C.A.) (a case concerned with an instalment contract for the purchase of quarry plant and machinery) and Mayson v. Clouet [1924] AC 980 (P.C.) (where the deposit was expressly recoverable under the contract and the instalments were not.): see also note 20 in williams on Title, 4th edition at p.744.

39. Where however a vendor exercises a right to forfeit a deposit (which is an earnest of the performance of the contract by the purchaser) upon the default of a purchaser the forfeiture is not a penalty and its retention has been said to be liquidated damages: Williams on Title, 4th edition, pp.744-5 and note 16 at p.744 citing Hinton v. Sparkes (1868) L.R.3 C.P.161. We know of no case, reported or unreported in the English courts where a normal deposit in a conveyancing transaction has been the subject of relief from forfeiture by a vendor (as distinct from recovery under section 49(2) of the Law of property Act 1925) and it seems to us to be a most unlikely occurrence, as is suggested in the passage in Barnsley's Conveyancing Law & practicee at p.224 cited by Mr. Chang.

40. In the present case the payments of $50,000 and $258,000 made by the purchaser were described in part IV of the Schedule to the Sub-sale Agreement as payments of the purchase price of $3,080,000 and as an "initial deposit" and a "further deposit" respectively. In clause 10 a forfeiture of the deposit money under that clause is expressed to be "as liquidated damages (and not as penalty)". It seems to us that the true nature of these payments, which amounted to 10 percent of the total purchase price, was that of ordinary deposits payable as an earnest of due performance of his contract by the purchaser.

41. Assuming, without deciding, that this court does have jurisdiction in equity to grant relief in respect of the forfeiture which the purchaser has incurred in the present case, we declined to do so. We can see nothing unconscionable in the vendor's conduct. He had paid for his interest in the property under the principal Agreement long before the date for completion of that Agreement, but he had incurred an outstanding mortgage debt of $2.3 million which he sought to discharge by obtaining payment of the sub-sale price from the purchaser under the Sub-sale Agreement before completion of that Agreement. It may not have been prudent of the purchaser (who required a mortgage loan) to bind himself to pay the sub-sale price before completion, but, in our opinion, the vendor was not guilty of sharp practice or trickiness in proposing the terms he did, nor was there anything unconscionable, in all the circumstances, about the margin of $400,600 between the price paid by the vendor and that for which he sub-sold the property.

42. As regards the circumstances of the rescission of the Sub-sale Agreement by the vendor, he had made his position transparently clear by his solicitors' letter dated the 13th February 1991, standing on his rights under the Agreement and warning the purchaser of the consequences of his persisting in his contention that the Agreement was to be construed as obliging the vendor to prove his good title before the purchaser could be required to pay the balance of the purchase price. It seems to us that it can fairly be said that the true cause of the rescission of the Sub-sale Agreement was the detault and implied repudiation of the purchaser who had contracted to purchase the property without first ensuring that he would be able to pay for it. If a purchaser puts himself in this position he cannot be heard to contend that his vendor, who stands on his rights and forfeits his deposit, has acted unconscionably. As Lord Macnaghten observed in Soper v. Arnold (1889) 14 App. Cas. 429 (H.L.) at p.435:

43. The appeal is therefore dismissed. We make an order nisi that the vendor is to have his costs of the appeal.

44. We add that on the 7th November 1989 in Yeung Kwok Leung v. Lam Cheuk Lai (1988, No. A6819) (unfortunately unreported) Godfrey J. sounded a warning to purchasers and their solicitors regarding the hazards likely to be encountered by both of them if, inter alia, purchasers were not advised against entering into contracts requiring them to pay the purchase money before the vendor's title had been investigated.