YEUNG KWOK LEUNG v. LAM CHEUK LAI

[A solicitor who allows his client to enter into a contract for the purchase of land which binds the client to accept the vendor's title, or which provides for payment of the purchase money, before the vendor's title has been investigated, without distinctly warning the client of the risks involved, will have no answer to a claim for damages for professional negligence if the vendor's title proves open to objection]

1988, No. A6819

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an action for specific performance of a contract for the sale of land. The plaintiff is the purchaser and the defendant is the vendor. The subject of the contract between the parties is Unit A, 20th Floor, Block 45, Heng Fa Chuen.

2. The vendor, however, is not the owner of the property. The owner of the property is the Mass Transit Railway Corporation ("the MTRC"). The MTRC agreed to sell the property to Poon Pui Man ("Poon") and Cheng Kam Foon ("Cheng"). The contract between the MTRC and Poon and Cheng was made on 21st April 1988. Poon and Cheng have agreed to sell the property to the defendant. This contract was made on 11th August 1988. The contract between the defendant and the plaintiff was made on 25th August 1988. So there has been (1) a sale by the MTRC to Poon and Cheng; (2) a sub-sale by Poon and Cheng to the defendant; and (3) a sub-sub-sale by the defendant to the plaintiff.

3. There is in Hong Kong speculation in units in properties as yet unbuilt. It is not uncommon to find, as one finds here, one or more sub-sales before the end user acquires the unit. In order to ensure that these transactions are carried into effect with the minimum possible trouble, it is the practice for a purchaser who sells on to give the purchaser from him a power of attorney to act in his, the original purchaser's, name so that the purchaser from the original purchaser will have no difficulty when he comes to complete his own contract with his own purchaser. And this goes on down the line.

4. In the present case, problems arose because the plaintiff's proposed mortgagee raised questions about the powers of attorney which had been brought into existence for the reasons which I have described. The result has been disastrous for the plaintiff.

5. The agreement between the plaintiff and the defendant was, as I have said, made on 25th August 1988. Both parties were represented by one firm of solicitors, Messrs Robert W.L. Hau & Co. As always happens, when a conflict of interest develops, those solicitors have now very properly dropped out of the picture. But it is the fact that, at the time when the agreement which has given rise to the present difficulties was made, the same firm of solicitors acted for both parties.

6. I cannot too strongly protest, as I have protested before, about the practice of the profession in Hong Kong in allowing this state of affairs to continue, notwithstanding the numerous cases in which, as a result, the solicitors have got one client or the other into trouble, and the reputation of the profession has been damaged accordingly.

7. In the present case, as in every case of dispute between a purchaser and a vendor, the starting point has to be a reference to the terms of the contract between them. I must now look at the terms of the contract here.

8. The purchase price specified in the contract was $1,200,000.00. A deposit of $120,000.00 was to be paid by the plaintiff to Messrs Robert W.L. Hau & Co. upon signing of the agreement as stakeholder (see clause 3). The contract, however, also contains the following provisions :-

"4 (a) The Vendor declares that Messrs. Robert W.L. Hau & Co. are the Vendor's Agents for the purposes of receiving all monies payable to the Vendor pursuant to this Agreement including the balance of the purchase price payable on or before 22nd day of September 1988.

(b) The Vendor further declares that the payment to such Agents of any deposit, instalments of the purchase price and the balance thereof (if any) shall be a full and sufficient discharge of the Purchaser's obligations hereunder."

How it is that a firm of solicitors can allow its client to enter into a contract declaring that a deposit is to be paid to themselves as stakeholder and at the same time declaring that they shall receive all monies payable to the vendor as the vendor's agent passes my comprehension. That, however, is not the only obvious blunder made in the preparation of this contract.

9. It is plain from Clause 4(a), which I have already read, that the balance of the purchase price was to be payable on or before 22nd September 1988. That, one might have thought, would have been the completion date, but no. Clause 5 of the contract provides as follows:-

"5 Completion shall take place at the office of the Vendor's solicitors at Messrs Robert W.L. Hau & Co., Rooms 1203-4, Entertainment Building, 30 Queen's Road Central, Hong Kong within 7 days of the Purchaser being notified in writing that an Occupation Permit relating on covering the said premises has been issued."

10. So, when the building is ready for occupation, and the occupation permit has been issued, the vendor is to be at liberty to notify the purchaser of that fact; within 7 days of receipt of such notification, the vendor and the purchaser shall be obliged to complete the contract. That might be after 22nd September 1988.

11. I must now mention Clause 7, which provides:-

"7 Time shall in every respect be of the essence of this Agreement."

and Clause 12, which so far as material, provides:-

"12 Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's solicitors as soon as practicable after delivery of the title deeds and in any event, not later than three days prior to the date of completion otherwise, the same shall be considered as waived."

    (There follows the usual provision that, if the purchaser shall make and insist on any objection or requisition which the vendor is unwilling to remove or comply with, the vendor is to be at liberty, on giving to the purchaser not less than 7 days notice in writing, to annul the contract, in which case, unless the objections or requisitions shall have been in the meantime withdrawn, the sale shall, at the expiration of the notice, be annulled, and the purchaser shall, in that event, be entitled to the return of the deposit.)

12. I must go on to mention Clause 19, which, so far as material, provides:-

"19 The Purchaser hereby confirms that he has perused the said Agreement and having fully satisfied himself the terms and conditions of the said Agreement. The Purchaser hereby accepts the title of the Vendor."

And I must mention Clause 20, which provides for conveyancing matters. It reads as follows:-

"20 The Vendor will procure the execution by the said Mass Transit Railway Corporation of a proper Assignment of the Property to the Purchaser in accordance with the terms of the said Agreement. The Vendor will as Confirmor join in the Assignment for the purpose of directing the same to be made to the Purchaser but shall not be required to enter into any convenants for title save as are usually given by the Confirmor."

(The reference to the confirmor is a reference to the vendor, who is to assign the property in that capacity; see Clause 8 of the contract.)

13. What is the court to make of this jumble of contradictory provisions? I was told the contract is in standard form; if so, it is a trap set for unsuspecting purchasers and should be the subject of urgent revision by those responsible for it. It is not easy to do; but I shall make an attempt at construing the contract so as to give effect to what appear to be the intentions of the parties, so far as they can be deduced from the terms of the contract itself.

14. First, there is no doubt, and it is not contended otherwise, that the balance of the purchase price has to be paid on or before 22nd September 1988. However, that is not to be the completion of the transaction. Completion is to take place only after the purchaser has been notified in writing that an occupation permit in respect of the property has been issued. The completion of a contract for the sale of land usually means the complete conveyance of the estate and final settlement of the business" : see Lewis v. South Wales Railway Company [1852] 10 Hare 113 per Turner V-C, at p.119. In that case the Vice Chancellor said this :-

"The question is what is the meaning of the words 'until the completion of the purchase'. Those words may no doubt import and generally perhaps would be construed to refer to the complete conveyance of the estate and final settlement of the business. But I do not think this is the only or necessary meaning of the words."

15. In the present case, it is clear that there was not to be "a final settlement of the business" on 22nd September 1988. The "final settlement of the business" could not take place until the purchaser had been given the notification which Clause 5 of the contract required, that is to say, a notification that an occupation permit relating to the property had been issued.

16. There is nothing inherently impossible about the concept of a "completion" which takes place in stages : see, for example, Killner v. France [1946]2 All E.R. 83 (where the purchase money had been paid by arrangement before completion took place and the property was in fact destroyed before completion).

17. Under Clause 19 of the contract, the plaintiff must be taken as having accepted the defendant's title when he entered into the contract. But the parties have not sought to rely on this before me, and, indeed, have agreed, for the purposes of the present action, that the plaintiff was not out of time in raising the requisitions on title which he made after his proposed mortgagee had raised questions about the power of attorney I have mentioned. Accordingly, so far as matters of requisition or objection to title go, the position is governed by Clause 12, which enables such requisitions or objections to be made so long as they are made not later than 3 days prior to the date of completion. That date has not yet arrived, and no difficulty, therefore, would arise on that score.

18. The difficulty confronting the plaintiff is a different difficulty altogether. It is a difficulty up to which he has to face because his solicitors allowed him to enter into a contract which provided for payment of the balance of the purchase price on or before 22nd September 1988, time being of the essence, and yet contained nothing which entitled him to say that, pending his acceptance of the title, his obligation to pay the balance of the purchase price was not to arise.

19. It was submitted to me, on behalf of the plaintiff, that it is a condition precedent to the obligation of the purchaser to pay the purchase money under this contract that the vendor shall first have shown a good title. But I am driven to conclude that there is no warrant for implying any such condition precedent into this contract. The contract provides for the balance of the purchase price to be paid on or before 22nd September 1988. It provides that time is to be of the essence of this contract in every respect. And it provides for a later date than 22nd September 1988 (or what might well turn out to be a later date) for the completion of the agreement, in the sense of "the final settlement of the business".

20. What went wrong here was that, because the proposed mortgagee could not be satisfied in time about the powers of attorney, the plaintiff was unable to come up with the money on 22nd September 1988. Accordingly, the defendant treated the plaintiff as in breach of a fundamental term of the contract and called the contract off. It seems to me that the defendant was perfectly entitled so to do. He had a contract which provided for the payment of the balance of the purchase price on or before 22nd September 1988; and he had a purchaser who, for whatever reason, good, bad, or indifferent, understandable or not, was unable to come up with the purchase money in accordance with the contract on the relevant date.

21. In the result, the purchaser has lost his deposit and can no longer claim, as he has sought to do, specific performance of the contract; because the contract is at an end. The purchaser has defaulted and the defendant has exercised his right to treat the contract, in those circumstances, as over and done with. I see no alternative, therefore, but to dismiss this action. I do not for a moment say that the plaintiff has not got a genuine grievance. In my judgment, he has, but that is a grievance which will have to be explored in whatever action he may bring against Messrs Robert W.L. Hau & Co., the solicitors who originally acted for him in this transaction. So far as this action is concerned, I propose, though I have every sympathy with the plaintiff, to dismiss it.

22. I would only add that a solicitor who allows his client to enter into a contract for the purchase of land which binds the client to accept the vendor's title, or which provides for payment of the purchase money before the title has been investigated, without distinctly warning the client of the risks involved, will have no answer to a claim for damages for professional negligence if the vendor's title proves to be open to objection.