MOON WAH INVESTMENT CO. LTD. v. TACPO TRADING LTD.

H.C.M.P. No. 5681 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5681 OF 1998

__________

__________

__________________________________

REASONS FOR JUDGMENT

__________________________________

Introduction

1. This is a vendor and purchaser summons taken out by the Plaintiff vendor. By a written agreement dated 10 February, 1998, the Plaintiff agreed to sell and the Defendant agreed to purchase certain pieces of land in the New Territories known as Sections A, D, E, G, J, K, L and M of Lot No. 1253 in Demarcation District No. 77 (collectively "the Land"). The sale of the Land was completed except in relation to Section J.

2. The potential title problem (I will not for present purposes call it title defect) regarding Section J arose as follows. Apart from the Government Grant, there were a number of conveyancing documents regarding this section commencing from a division of property in 1915. By this division of property, the sections of Lot No. 1253 referred to above (including Section J) were vested in one owner. The other sections (that is, B, C, F, H, I and N) of the same Lot were given to another owner. The memorials relating to the conveyancing documents during the period from 1920 to 1997, however, referred to a conveyance of Section I whenever Section J ought to be referred to. A "Memorandum as to Error" dated 18 September, 1997 was made by the District Land Registry acknowledging that the said mistake was made relating to the memorials dating from 1920 to 1974. The memorials regarding conveyances from 1980 to 1997 were however not covered by this.

3. Requisitions on title were made by the Defendant's solicitors. By a Supplemental Agreement dated 30 March, 1998, the parties agreed inter alia the following:-

"[Recital] (2)

The Vendor has failed to prove good title in respect of one of the sections of the Property, namely, Section J of Lot No. 1253 in D.D. 77 ... and both the Vendor and Purchaser have agreed to complete the sale and purchase of the Property excluding Section J according to the terms set out hereinafter provided.

...

[Clause] 3

After signing of this Agreement, the Vendor shall use its best endeavours at its own cots and expenses to rectify the errors in the documents registered in the North New Territories Land Registry by memorial nos. 198159, 204535 and 208472 or to obtain a Court Declaration to the effect that Section I referred to in the [said] documents ... be ratified and be deemed to refer to Section J so that the Vendor can prove good title in respect of Section J.

The completion of ... Section J shall be extended to take place within 7 days after the Purchaser's Solicitors is [sic] satisfied with the title of the Vendor in respect of Section J or upon the Vendor serving on the Purchaser a sealed copy of the said Court Declaration.

In the event of the Vendor failing to rectify the errors in the said documents or to serve on the Purchaser such a Court Declaration before the expiration of 4 months from the date hereof ... the Purchaser shall be entitled to determine the Principal Agreement and this Agreement ... and the deposit and all other moneys paid by the Purchaser to the Vendor in respect of Section J shall be forthwith returned ... " (italics and bold type supplied).

4. The 3 memorials referred to in the Supplemental Agreement were related to:-

(a) a conveyancing on sale dated 7 February, 1980;

(b) a conveyancing on sale dated 16 April, 1982;

(c) a conveyancing on sale dated 31 March, 1983.

In relation to document (a), the assignor was a Lau Yuk Tin and the assignee was a Tricot Products Limited.

5. In short, subsequent to the Supplemental Agreement, the Plaintiff's solicitors have procured Tricot Products to execute a Confirmatory Assignment dated 24 April, 1998 in the Plaintiff's favour. A number of points were raised by the Defendant in relation to this. At the end, the Defendant was not satisfied that the title problem had been removed in accordance with the Supplemental Agreement and therefore resisted this action.

6. At the end of the hearing on 19 July, 1999, the following orders were made:-

(a) a declaration order that the Plaintiff has breached the Supplemental Agreement dated 30 March, 1998;

(b) the Defendant is entitled to rescind the Principal Agreement dated 10 February, 1998 and the Supplemental Agreement relating to Section J;

(c) the deposit in the sum of $270,000 be returned by the Plaintiff to the Defendant without interest up to the date of judgment but with interest at judgment rate 7 days after date of judgment until payment;

(d) by consent, there be no order as to cost of the action.

7. I indicated that reasons for those orders would be handed down on a date to be notified to the parties. These are the reasons.

The Plaintiff's Obligation pursuant to Clause 3 of the Supplemental Agreement

8. Mr. Mui for the Defendant argued that no matter what the Plaintiff's obligation was before the Supplemental Agreement, there was an obligation to act in accordance with the terms thereof subsequent to this agreement. On the other hand, Mr. Koo for the Plaintiff argued that it was still open for the Plaintiff to show good title by means other than those stipulated in this agreement. I agreed with Mr. Mui and disagreed with Mr. Koo over this point. The provisions of clause 3 are clear and specific and expressly provided for two alternative means for the Plaintiff to prove good title. The words "so that the Vendor can prove good title" make this obligation very clear.

9. Mr. Koo argued that clause 4 of the Supplemental Agreement (which stated "Save and except as hereby varied, all the terms and conditions ... in the Principal Agreement (that is, the agreement dated 10 February, 1998) shall remain in full force and effect") enabled the Plaintiff to prove good title by other means. I did not agree because clause 4 must be subject to the other clauses in the Supplemental Agreement, in particular clause 3.

10. Mr. Koo then contended that even if there be a contractual duty for the Plaintiff to prove title in the ways provided for, the duty was not an absolute one because clause 3 (which was relied upon by the Defendant) only provided that "the Vendor shall use its best endeavours ... to rectify the errors ... ". I do not agree because:-

(a) clause 3 expressly stipulated that "In the event of the Vendor failing to rectify the errors ..." and not "In the event of the Vendor failing to use its best endeavours to rectify the errors ... ". The "triggering" event is therefore the failure to rectify and not the failure to use best endeavours;

(b) the construction contended for by the Plaintiff rendered its obligation under clause 3 to be vague and uncertain. The phrase "best endeavours" is imprecise and can have a range of meanings. The Court should strive to construe a contract to avoid such uncertainty. The reasonableness of the result of any particular construction is a relevant consideration in choosing between rival constructions: see Lewison: The Interpretation of Contracts (1997) 2nd ed., para. 6.13.

11. Since the construction contended for by the Plaintiff is inconsistent with point (a) above, I do not find it necessary to adopt the approach set out in point (b) above to reach the conclusion that there was a duty to rectify the 3 memorials. If it had been necessary to do so, I would have come to the same conclusion relying on point (b) (together with point (a)).

Has the Plaintiff's Obligation been Discharged?

12. As stated earlier, the only step the Plaintiff succeeded in taking regarding the 3 documents in question was procuring Tricot Products to execute a Confirmatory Assignment. I agreed with Mr. Mui that this was insufficient because Tricot Products was only the assignee of the 1980 conveyance. An assignee was not in a position to confirm what property had been conveyed. The proper person to do so would have been the assignor.

13. The reason why the assignor did not execute a Confirmatory Assignment was explained in the Plaintiff's solicitors' letter dated 25 March, 1998 where they said:-

"... the Solicitor for the parties to Conveyance on Sale Memorial No. 198159 has indicated ... that she will not in [sic] a position to rectify the error ... as there will be difficulty in locating the Vendor thereof to initial against the proposed amendment ... ".

14. Even if the Plaintiff's duty under clause 3 were only to use best endeavours, I did not regard that there was evidence before me to show that best endeavours had been used:-

(a) no evidence was filed to this effect;

(b) the said letter dated 25 March, 1998 did not show that this had been done. For example, it was unknown what steps had been taken to locate the assignor by the solicitor mentioned therein. It was also unknown whether the Plaintiff or its solicitors should or could have located the assignor themselves.

15. Further, nothing has been done by the Plaintiff regarding the other 2 memorials referred to in clause 3 of the Supplemental Agreement.

16. For the above reasons, I found that the Plaintiff has not acted in accordance with the provisions of the Supplemental Agreement and was in breach thereof.

Conclusion

17. For the above reasons, I considered that the Defendant was entitled to the orders made on 19 July, 1999.

18. It remains for me to consider whether to dismiss the Plaintiff's claim in the Originating Summons, or to make no order thereon. Mr. Koo asked me to grant the relief asked for in the Originating Summons. He contended the Plaintiff had been able to show a good title (even though it might have breached the Supplemental Agreement) because:-

(a) the Land Registry records relating to Sections B, C, F, H, I and N of Lot No. 1253 showed that those sections had never been conveyed and were still owned by the same owner since 1915;

(b) the District Land Registry's "Memorandum as to Error" dated 18 September, 1997 expressly stated that the reference to Section I was a mistake regarding the memorials from 1920 to 1974. The only inference to be drawn from this must be that the reference to Section I in the other memorials must have been a mistake as well.

19. I do not consider that it is proper for me to decide this question in this action. The Defendant's arguments at the hearing concentrated on whether the Plaintiff had breached the Supplemental Agreement. Further, it was unexplained why the "Memorandum as to Error" (dated 18 September, 1997) was limited to those documents up to 1974 but left out those from 1980 to 1997.

20. It has been said that a declaration order as to good title made in a vendor-purchaser summons is binding on the immediate litigants only: see Emmet on Title 19th ed., para. 7.042 citing Horton v. Kurzke [1971] 1 W.L.R. 769. However, if the Plaintiff's claim is dismissed, it may create unnecessary difficulties between the Plaintiff and other purchasers of Section J. For this reason, I consider the more appropriate course would be to make no order as to the Plaintiff's claim.