HEALTHY CENTURY LTD v. CHOI LO

   HCMP2412/2008

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   MISCELLANEOUS PROCEEDINGS NO. 2412 OF 2008

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BETWEEN

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JUDGMENT

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1.  This is a vendor and purchaser summons taken out by the plaintiff. The dispute is whether the defendant (vendor) had repudiated the relevant sale and purchase agreement.

Background

2.   Prior to her death on 10 January 2007, the late Madam Tong Kwai Ling (“Deceased”) was the owner of the property known as Unit No. 6 on the 5^th floor of Kai Fu Building (Block V of Whampoa Estate), Hung Hom, Kowloon (“Property”). At the time, the Property was leased to one Mr Hung Cho Tsan and his mother Madam Or Po Wa (collectively the “Tenants”) pursuant to a written tenancy agreement dated 24 February 2006 (“2006 Tenancy Agreement”).

3.  Under the 2006 Tenancy Agreement, the Property was leased to the Tenants at the monthly rental of HK$5,700 for the term of two years from 1 March 2006 to 29 February 2008. During the second year of the tenancy, the parties had an option to terminate the tenancy by serving a one-month notice. The defendant described this feature as “seng yuek” (生約), which is a colloquial term often used in the tenancy context. Further, the Tenants were required to pay rental deposit of HK$11,400, which is a sum equal to two months’ rental.

4.  After the Deceased passed away in January 2007, the defendant (who is the Deceased’s daughter) was appointed as the administratrix of the Deceased’s estate. About a year later (i.e. around January 2008), the defendant agreed with the Tenants to renew the tenancy on a “seng yuek” (生約)basis for 1 year from 1 March 2008 to 28 February 2009. This, as stated above, meant each party had an option to terminate the renewed tenancy at any time during its term by giving a one-month notice. The monthly rental was increased from HK$5,700 to HK$6,100. Save as aforesaid, the other terms were the same as the 2006 Tenancy Agreement. At the time when this renewal was agreed, no written tenancy agreement was signed by the parties. In other words, this renewed tenancy was an oral tenancy (“Oral Tenancy”). To show the existence of this Oral Tenancy, the defendant had produced copies of her Hongkong and Shanghai Banking Corporation Ltdbank book which showed the regular deposit of HK$6,100 into her bank account.

5.  In around June 2008, the defendant put up the Property for sale through an estate agent known as Ms Lam Yuk Wan Julia (“Ms Lam”). On the other hand, the plaintiff, through its property agent expressed interest in buying the Property. Eventually, a provisional agreement for sale and purchase dated 1 August 2008 (“Provisional Agreement”) was made between the defendant as vendor and the plaintiff as purchaser, whereby the plaintiff agreed to buy the Property at the price of HK$1,680,000. A sum of HK$50,000 was paid as initial deposit by the plaintiff. Completion was scheduled to take place on 3 November 2008.

6.  Of particular importance to the present dispute are clauses 4 and 18 of the Provisional Agreement. Clause 4 stated that the plaintiff agreed to purchase the Property “subject to the existing tenancy”. Clause 18, which was inserted into the pro-forma Provisional Agreement in manuscript, read as follows:

“此合約連租約一起購入租金為HK$6,100.00元正，全包，包括租約內之傢俬及電器，成交當日賣方須退回兩個月之租金按金給新買家。”

[English translation[1]: This purchase was subject to tenancy. Rental was HK$6,100, all inclusive. Furniture and electrical appliances are included under the tenancy. On the completion date, the vendor should paid over the two months’ rental deposit to the purchaser.]

7.  After the Provisional Agreement was signed and pursuant to clause 2(b) thereof, the further deposit in the sum of HK$118,000 was paid by the plaintiff to the defendant on 15 August 2008. However, not only did the parties fail to agree on the terms of the formal sale and purchase agreement, a dispute over the tenancy (to which the purchase was subject) arose between the parties.

8.  By a letter dated 3 September 2008 sent by the plaintiff’s solicitors MessrsKatherine Y.W. Or & Co. (“KYWO”) to the defendant’s solicitors MessrsEli K.K. Tsui & Co. (“EKKT”), the plaintiff enquired about the tenancy to which the purchase was subject. It asked whether the tenancy was in written form or whether it was an oral monthly tenancy. Following a reminder from KYWO dated 22 September 2008, the defendant’s solicitors (EKKT) answered the plaintiff’s enquiry, inter alia, as follows:

“Please be informed that the existing tenancy is an oral monthly tenancy, particulars of which are as follows:

1)	Name of Tenant:	柯寶華 and 洪祖贊
2)	Monthly Rental:	HK$5,700.00 per month (inclusive of Rates, government rent and managementFees)
…
5)	Rental Deposit heldby the Vendor:	HK$11,400.00…”

9.  Subsequent to this letter, the Tenants and the defendant had entered into a tenancy agreement dated 30 September 2008 (“2008 Tenancy Agreement”). In this regard, there is a small episode which I shall add at this juncture so as to complete the picture. According to the defendant, the 2008 Tenancy Agreement was entered into at the request of the plaintiff, and that it recorded the terms of the Oral Tenancy. (See paragraph 21 of the Affirmation of Choi Lo filed on 5 February 2009 and paragraphs 10 to 14 of the Affirmation of Lam Yuk Wan Julia also filed on 5 February 2009.) On the other hand, the plaintiff denied that it had ever requested the defendant to execute the 2008 Tenancy. (See paragraph 4 of the Affirmation of Li Kwok OnDavid filed on 24 August 2009.) At the beginning of this hearing, this court pointed out to the parties that this factual dispute could not be resolved by reading the opposing affirmations. Following a short adjournment and with a view to saving time and costs, the parties sensibly agreed that this court does not need to resolve this factual dispute. Instead of maintaining their original position, the parties agreed that the 2008 Tenancy Agreement was not entered into at the plaintiff’s request but it was a written record of the Oral Tenancy.

10.  Returning to the contemporaneous correspondence, the matter continued as follows. After perusal of title deeds, KYWO in their letter dated 8 October 2008 asked the defendant to clarify the discrepancies between clause 18 of the Provisional Agreement and the above answer given by EKKT. In reply, EKKT stated in their letter dated 10 October 2008 that the plaintiff had agreed that the rental deposit to be transferred on completion is HK$11,400. Further, EKKT enclosed a copy of the 2008 Tenancy Agreement for the plaintiff’s reference.

11.  The plaintiff was not satisfied with the defendant’s reply. By their letter dated 16 October 2008, KYWO asserted as follows:

“… Upon execution of Tenancy Agreement dated 30^th September 2008, the existing oral monthly tenancy in respect of the above property as mentioned in your letter dated 23^rd September 2008 has been terminated and ceased to have effect. The termination of the said oral monthly tenancy and the execution of the said Tenancy Agreement were done without our client’s prior consent and approval. Your client has unilaterally altered a material term of Provisional Agreement for Sale and Purchase dated 1^st August 2008, i.e. the tenancy agreement subject to which the above property is sold and thereby completely changed the subject matter of the present transaction…”

12.  The defendant disagreed. By their letter dated 20 October 2008, EKKT stated that the 2008 Tenancy Agreement is not a title document and maintained there were no discrepancies since the terms of the Oral Tenancy and the 2008 Tenancy Agreement were the same.

13.  In response, the plaintiff sought to accept the (alleged) reputation by the defendant. In this regard, KYWO’s letter dated 28 October 2008 stated as follows:

“… By terminating the oral monthly tenancy existed at the date of Provisional Agreement for Sale and Purchase dated 1^st August 2008 and by entering into a new Tenancy Agreement on 30^th September 2008 without our client’s consent and approval, your client has committed a fundamental breach of the said Provisional Agreement.… Our client treats your client’s breach as aforesaid as a wrongful repudiation of the said Provisional Agreement and hereby accepts it. Without prejudice to our client’s other rights and remedies, we are instructed by our client to give your client notice through you, which we hereby do, that our client hereby determines the said Provisional Agreement and demands the return of all deposits paid together with a sum of HK$50,000.00 as liquidated damages on or before 3^rd November 2008…”

14.  Thereafter, there were further exchange of correspondence between the parties’ solicitors. For the present purpose, it is not necessary to deal with them in any detail; suffice it to say that the defendant did not agree that she had repudiated the Provisional Agreement and the plaintiff thus commenced these proceedings under section 12 of the Conveyancing and Property Ordinance (Cap. 219) against the defendant.

Whether repudiation

15.  Although one of the declarations sought in the Originating Summons is that the defendant had failed to answer satisfactorily the requisitions raised by the plaintiff, both parties only dealt with the issue of repudiation at the hearing. The plaintiff’s counsel did not pursue the point that the defendant had not satisfactorily answered the requisition either in his skeleton submissions or his oral delivery at the hearing. I think this is a sensible approach. Plainly, the requisition in question did not go to title and the plaintiff could not refuse to complete on that ground. In the circumstances, the adjudication of these proceedings turns on the question of whether the defendant had repudiated the Provisional Agreement as contended by the plaintiff.

16.  It is trite that not every breach of contract amounts to a repudiation. The learned author of Chitty on Contracts (30^th edn), Vol. 1, discussed the position as follows (at para. 24-018):

“A renunciation of a contract occurs when one party by words, or conduct evinces an intention not to perform, or expressly declares that he is or will be unable to perform, his obligations under the contract in some essential respect…. An absolute refusal by one party to perform his side of the contract will entitle the other party to treat himself as discharged, as will also a clear and unambiguous assertion by one party that he will be unable to perform when the time for performance should arrive. Short of an express refusal or declaration, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions. The renunciation is then evidenced by conduct. Also the party in default:

‘… may intend in fact to fulfil (the contract) but may be determined to do so only in a manner substantially inconsistent with his obligations,’

or may refuse to perform the contract unless the other party complies with certain conditions not required by its terms…

If one party evinces an intention not to perform or declares his inability to perform some, but not all, of his obligations under the contract, then the right of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed. Words or conduct which do not amount to a renunciation will not justify a discharged.”

17.  In the present case, the plaintiff’s complaint arose from the making of the 2008 Tenancy Agreement in place of the Oral Tenancy. Paragraph 2 of the skeleton submissions lodged on behalf of the plaintiff stated: “The repudiation of the Provisional Agreement is that the ‘existing tenancy’ particularised in the Provisional Agreement subject to which the Property was to be sold upon completion was different from the actual tenancy to subsist at the time of completion.”

18.  Having considered the evidence and the parties’ submissions, I do not accept that there was a repudiation by the defendant as contended by the plaintiff.

19.  As stated above, clauses 4 and 18 of the Provisional Agreement are the material provisions. Plainly, those two clauses should be read together. In my view, the provisions in clauses 4 and 18 of the Provisional Agreement are clear. Clause 4 simply stated that the sale of the Property was subject to “existing tenancy”. Clause 18 then went on to provide more particulars. The particulars so provided are these. First, the monthly rental was HK$6,100, all inclusive. Second, the tenancy included furniture and electrical appliances as stated in the tenancy. Third, the vendor (defendant) should pay over rental deposit equal to two months’ rental to the plaintiff upon completion.

20.  The questions that call for determination can be stated as follows: (1) whether the 2008 Tenancy Agreement was the “existing tenancy” as stated in clauses 4 and 18; (2) whether the terms of the 2008 Tenancy Agreement were inconsistent with the terms of the Provisional Agreement; (3) if these two questions are answered in favour of the plaintiff, whether that scenario constituted a repudiation.

21.  At the time of the Provisional Agreement, the “existing tenancy” as stated in clause 4 thereof was the Oral Tenancy and not the 2008 Tenancy Agreement. However, I cannot see how this change from the Oral Tenancy to the 2008 Tenancy Agreement could, on the facts of the present case, amount to a repudiation. Contrary to the assertion made by the plaintiff in the correspondence summarized above, there was no termination of the Oral Tenancy. Instead, as contended by the defendant, the 2008 Tenancy Agreement was only a record of the Oral Tenancy. The defendant’s position is supported by the evidence of the estate agent, Ms Lam, who is not a party to these proceedings and whose evidence I would regard as independent evidence. In any event, the plaintiff has not adduced any evidence to refute this assertion by the defendant. On the contrary, as stated in paragraph 9 above, the parties at the beginning of this hearing agreed that the 2008 Tenancy Agreement was a record of the Oral Tenancy.

22.  In the circumstances, I accept the defendant’s case in this regard and find that the making of the 2008 Tenancy Agreement did not terminate the Oral Tenancy as contended in the above-quoted letters from the plaintiff’s solicitors. I also accept that the 2008 Tenancy Agreement was a record of the Oral Tenancy. Therefore, I do not think the change of the tenancy from an oral to a written form amounted to a repudiation of the Provisional Agreement.

23.  I now move on to deal with the terms of the 2008 Tenancy Agreement and the provisions in the Provisional Agreement. In this regard, only clause 18 is relevant. As stated above, clause 18 dealt with three aspects. The first aspect is the monthly rental, which I do not think the plaintiff could have any valid complaint. The amount of monthly rental stated in clause 18 is the same as that stated in the 2008 Tenancy Agreement.

24.  The second aspect is the furniture and electrical appliances. In this regard, all that clause 18 said is that the tenancy would include the furniture and electrical appliances stated in the tenancy. Clause 18 itself did not specify any items of furniture or electrical appliances. In other words, clause 18 simply stated that the particulars of the furniture and electrical appliances, if any, should be in accordance with or as specified in the tenancy. The relevant particulars could indeed be found in clause (11) of the 2008 Tenancy Agreement.

25.  The third aspect is the deposit. In this regard, it is pertinent to note that although the monthly rental was increased from HK$5,700 to HK$6,100, the amount of rental deposit paid and maintained under the 2008 Tenancy Agreement remained at HK$11,400 instead of being increased to HK$12,200. However, it is equally pertinent to note that this part of clause 18 is a stipulation as to what should happen at the time of completion, and not a stipulation as to the terms of the tenancy existing at the time of the Provisional Agreement. Hence, taking the plaintiff’s case at its highest, the plaintiff could only demand the defendant to pay over HK$12,200 to the plaintiff at the time of completion. The time for the performance of this obligation, if it existed, had not arrived because the plaintiff sought to terminate the Provisional Agreement by its solicitors’ letter of 28 October 2008 (i.e. before the completion date). In any event, the defendant had expressed a willingness to pay the difference of HK$800 to the plaintiff upon completion.

26.  On the whole, I do not think the making of the 2008 Tenancy Agreement and its terms constituted a repudiation. From any perspectives, the making of the 2008 Tenancy Agreement in place of the Oral Tenancy cannot be said to have constituted a fundamental breach of the Provisional Agreement, or deprived the plaintiff of the substantial benefits that it would derive under the Provisional Agreement. The Property remained subject to a tenancy with the same terms. All the benefits (such as monthly rental and the term of the lease) that the plaintiff could have expected at the time of the Provisional Agreement remained despite the making of the 2008 Tenancy Agreement. The identity of the Tenants, and thus their ability to pay rental, also remained the same.

27.  Before concluding this judgment, I should add that the plaintiff relied heavily on the Court of Final Appeal’s decision in Marble Holdings Ltd v Yatin Development Ltd [2008] 4 HKLRD 950. Whilst the legal principles expounded are not in dispute, the facts which led to the decision of the Court of Final Appeal are clearly distinguishable from the facts of the present case. In Marble’s case, the sale of the property was made subject to two tenancies, the second one to follow the first one immediately. If everything went smoothly, the second tenancy would have been put in place at the time of completion. However, on completion, the second tenancy was not put in place because the tenant under the first tenancy refused to vacate the premises. It was on this basis that the Court of Final Appeal held that there was a repudiation by the vendor (see per Mortimer NPJ, at para. 34). In the present case, as stated above, the 2008 Tenancy Agreement was only a record of the Oral Tenancy. Had the plaintiff proceeded to complete the purchase, the Property would be subject to a tenancy with terms which were exactly as the terms of the Oral Tenancy, which existed at the time of the Provisional Agreement. Hence, Marble’s case plainly does not support the plaintiff’s contention.

28.  For all these reasons, I reject the plaintiff’s contention of repudiation. Insofar as may be necessary, I also find that the plaintiff was the party who was in wrongful repudiation of the Provisional Agreement and the defendant is entitled to forfeit the deposit pursuant to clause 7 of the Provisional Agreement. In the circumstances, the plaintiff is not entitled to the relief sought in the Originating Summons and I dismiss the plaintiff’s claim in these proceedings in its entirety. I also make an order nisi that the plaintiff do pay to the defendant all the costs of and incidental to these proceedings (including the costs of the hearing on 10 September 2009), to be taxed if not agreed.

29.  It remains for me to express my gratitude to both sides’ counsel for their assistance.