CHAN TAK SING v. WONG CHEUNG KONG AND OTHERS

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

-----------------

-----------------

JUDGMENT

-----------------

1. The Plaintiff purchaser ("the purchaser") and the Defendant vendor ("the vendor") entered into a Sale and Purchase Agreement dated 23^rd December 1996 ("the Agreement") for the purchase of the property known as Unit No.3, 6^th floor, Tower A, Fortress Metro Tower, No.238 King's Road, Hong Kong ("the property"). The purchase price was $4,100,000.00. Upon the signing of the Agreement the total deposit paid by the purchaser to the vendor came to 10% of the purchase price i.e. $410,000.00. Under the Agreement completion was set for on or before 1:00 p.m. 25^th March 1997 at the office of Messrs Ng, Tam, Ko and Chan, Solicitors, ("NTKC") the solicitors for the vendor.

The Background

The Facts

2. The following are the relevant clauses of the Agreement:-

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

4. On 11^th January 1997, title deeds and documents were delivered to Messrs Lo & Yip, Solicitors, ("L&Y") the solicitors for the purchaser. Included in the documents delivered were :-

5. By letter dated 20^th January 1997, L&Y wrote to NTKC and raised four requisitions, the first one of which relates to Nomination Memorial 4665777 and reads as follows:-

          "1. Nomination M/N 4665777

Grand Force Investment Limited and Herbert House Limited executed the above Nomination by their common seals and signed by one of their directors respectively. Please let us have their Articles to prove due execution. Moreover, the execution clauses of Grand Force Investment Ltd. and Herbert House Limited should be described as 'Sealed with the Common Seal of... And signed by ...' but not 'Signed, Sealed and Delivered ...' Please rectify. Original Nomination M/N 4665777 is enclosed herewith for your handling."

At the end of that letter from L&Y raising the requisition appears this paragraph : "We reserve our rights to raise further requisition upon receiving your replies of the above". It is common ground that the other three requisitions raised in this letter has no relevance to the present dispute between the parties and I do not set them out.

6. By another letter dated 21^st January 1997 L&Y wrote to NTKC as follows:

7. On 30^th January 1997 L&Y wrote to NTKC as follows :

8. By letter dated 26^th February 1997 NTKC answered the requisitions raised in L&Y's letter of 20^th January 1997. That letter made no reference to L&Y's letters dated 21^st January and 30^th January 1997. There is no need to repeat the contents of the letter of 26^th February 1997 from NTKC answering the requisitions since it is accepted by the purchaser that those requisitions raised in their letters of 20^th January and 21^st January have either been sufficiently dealt with or no longer pursued by them. The letter of 26^th February from NTKC to L&Y ends with this paragraph:

"We trust that we have fully answered all your requisitions to your satisfaction and Completion shall take place on the date and time as agreed and we hereby expressly reserve all our client's rights and interest in this matter."

The requisition contained in L&Y's letter to NTKC dated 30^th January 1997 was never answered or dealt with by NTKC but there were no further letters from L&Y pressing NTKC for any answer thereto until the very day of completion i.e. 25^th March 1997, shortly before the completion time of 1:00 p.m.

9. On 22^nd March 1997 sent over to NTKC were draft Assignment and Undertaking Letter. These were sent over with a covering letter which stated that the drafts were sent over to NTKC for approval "without prejudice to our requisitions raised". There was however no specific mention of any or what requisition was outstanding. Neither did the draft Letter of Undertaking (which was drafted by L&Y of various undertakings to be given by NTKC to L&Y in the transaction) contain any undertaking to obtain a Confirmatory Deed duly executed by GFIL or to do any other thing relating to the requisition contained in L&Y's letter of 30^th January.

10. On the day of completion, i.e. 25^th March 1997, at 12:43 p.m. L&Y faxed over to NTKC a letter saying that requisition No.1 in respect of Nomination M/N 4665777 as set out in their letter of 20^th January remains unanswered and as that defect affects the root of title, unless the matter is resolved by 1:00 p.m. on that day, they have instructions to postpone the completion to a convenient date.

11. This immediately drew a reply from NTKC faxed over to L&Y on the same day at 12:57 p.m. to the effect that NTKC had satisfactorily answered all the requisitions including requisition No.1 by their letter of 26^th February and that L&Y had never indicated that they did not accept NTKC's answer until their letter of 25^th March. NTKC further reserve expressly all their client's interest and rights under the Agreement.

12. Telephone conversation between the respective solicitors reached an agreement to postpone the time for completion to 3:00 p.m. that same day i.e. 25^th March 1997.

13. L&Y then faxed to NTKC another letter on the same day at 2:10 p.m. which stated :

This letter was followed by yet another letter faxed by L&Y to NTKC at 2:52 p.m. the same day which states:

"Further to our 2^nd letter of today's date, we have to confirm that our client is ready and willing to complete the sale and purchase of the captioned property and the solicitors for the mortgages bank is now awaiting your answer to our said 2^nd letter for release of the mortgage loan. Kindly let us have your reply as a matter of urgency."

To this NTKC replied by letter faxed to L&Y at 3:20 p.m. stating that they had answered the requisitions by their letter of 26^th February and they L&Y's letter dated 30^th January which raised the present requisition was in fact our of time and that L&Y cannot insist on this requisition.

14. By a further letter from NTKC faxed to L&Y at 3:45 p.m. the same day, NTKC threatened that unless their clients receive the balance of purchase price at or before 4:15 p.m. that day, their clients shall exercise their rights under the Agreement including forfeiting the deposits paid and claiming for other damages.

15. By yet another letter on the same day and faxed over by L&Y to NTKC, L&Y maintained their view that the defect revealed in the Minutes of Meeting dated 28^th November 1990 and the Nomination M/N 4665777 is a defect that goes to the root of title, the requisition of which can be raised at any time prior to completion. L&Y further stated that their client being a ready and willing purchaser, that should the vendor forfeit the deposits their clients would institute legal proceedings against the vendor.

16. At 4:53 p.m. on the same day NTKC by letter faxed to L&Y gave notice under clause 27 of the Agreement that the deposits paid under the Agreement are thereby absolutely forfeited and that the vendor rescind the sale to the purchaser as by that time they have not received the balance of the purchase price for completion.

17. This dispute is now crystallised in the form of the Vendor and Purchaser Summons now before this court. At the hearing the Plaintiff indicated through its counsel that he only pursues the requisition raised in the letter dated 30^th January 1997.

Time Limit for Requisition

18. The first question which has to be decided as to whether or not the requisition contained in L&Y's letter of 30th January was within the time limit as stipulated in clause 14(1) of the Agreement. Since the title deeds were delivered to L&Y on 11^th January, seven working days therefrom expired on 20^th January. In the circumstances the requisition contained in the letter of 30^th January is prima facie out of time.

19. Mr Li for the Plaintiff argued two points to say that it was not out of time. Firstly he argued that it was a follow up to Requisition No.1 in L&Y's letter of 20^th January because it deals with the validity of the Nomination in question.

20. The flaw in this argument is that Requisition No.1 in the letter of 20^th January raised the point of "due execution" and the form of the execution clause in the Nomination. No mention was ever made of the GFIL minutes whereas the letter of 30^th January raised the point of authority to execute the Nomination in the light of the GFIL minutes. It can therefore be seen that whilst each letter raised the question of the validity of the Nomination, they were based on very different reasons. It must therefore follows that they were different requisitions. I do not accept that the requisition raised in the letter of 30^th January was a follow up of that in the letter of 20^th January.

21. The second point argued by Mr Li is that L&Y had reserved their rights in both letters of 20^th and 21^st January to raise further requisitions therefore they were entitled to raise the requisition in the letter of 30^th January.

22. The reservation in both the letters of 20^th and 21^st January were stated in these terms :"We reserve our rights to raise further requisition upon receiving your replies of the above."

23. Bearing in mind the strict time limit in clause 14(1) of the Agreement, the reservation of rights to raise further requisitions in these two letters cannot in my judgment enlarge or extend what have been agreed by the parties in clause 14. The two reservations in both letters, qualified by the words "upon receiving your replies of the above", can only be effective in allowing the Plaintiff to follow up on the requisitions already raised by L&Y and resulting from the replies received. It cannot be a carte blanche for L&Y to raise other requisitions not already raised within time. In view of the fact that this requisition raised in the letter of 30^th January was a wholly different requisition from what was previously raised by L&Y, the words reserving rights to raise further requisitions in L&Y's letters of 20^th and 21^st January cannot avail the Plaintiff insofar as the requisition under dispute is concerned.

24. For the above reasons I find that the requisition raised by L&Y in their letter of 30^th January was out of time limit imposed by clause 14(1) of the Agreement. The effect of that under that clause is that it is deemed to have been waived.

25. I must also deal with another matter concerning the time limit for requisition. Although this point had not been seriously pursued at the hearing before me, it was a point, nevertheless, which had been raised in the correspondence between solicitors. In several of the letters from L&Y to NTKC it was stated that a requisition going to the root of title can be made at any time prior to conclusion - implying that it is so notwithstanding any time limit agreed upon for making requisitions.

26. In the case of Hillier Development Limited v. Trend East Limited [1993] 1 HKC 285, Penlington J.A. having considered the authorities referred to on this same point, said at page 293 of his judgment :-

"I am satisfied that those authorities only go to the proposition that where a vendor, having used due diligence, is unaware of some defect in the vendor's title, the time limit imposed in the agreement does not run against him."

Then after citing North J. in the case of Re Cox & Neve's Contract, Penlington J.A. said also at page 293 of his judgment :-

"Clearly he considered that if the purchaser had been aware of the covenant the 14 day time limit would have run, notwithstanding that it affected the root of title."

In this matter, I am bound by the decision of the Court of Appeal in Hillier's case so that in this case the purchaser having been supplied all the documents of title including the GFIL minutes and the Nomination by NTKC on 11^th January and from which the inconsistency between the minutes and the Nomination could and should have been appreciated, he was bound by the time limit under clause 14(1) of the Agreement such that the disputed requisition ought to have been made before 20^th January 1997. On the decision in Hillier's case, this would be so even if the matters raised in that requisition goes to the root of title.

27. The above would have been sufficient to dispose of the Summons against the Plaintiff. However, as other matters were raised in argument. I feel obliged to deal with them here.

Roots of Title

28. This was a matter of some heated argument between the parties as to whether or not the matter raised in L&Y's letter of 30^th January 1997 went to the root of title. This issue seems academic in the right of what was decided by the Court of Appeal in Hillier's case. I shall, nevertheless, deal with such arguments.

29. In his submission, Mr Wong dealt with this issue in this way. He argued that firstly all the conveyancing evidence i.e. the GFIL minutes, the minutes of HHL as well as the Nomination, stated that the deposit of the purchase price for the property was paid by HHL and no other documents indicated otherwise. Secondly that the Assignment of the property from Mr Yeung and Mr Cheng to HHL stated that the balance of purchase price was paid by HHL receipt whereof was acknowledged by Mr Yeung and Mr Cheng. The combined effect of these two facts clearly shows that all the purchase money was paid by HHL for the property so that the equitable title of the property must vest with HHL. Moreover the Assignment of the property over to HHL from Mr Yeung and Mr Cheng shows that the legal title also vest with HHL. In the circumstances, the inconsistency between the GFIL minutes and the Nomination remains an inconsistency but cannot affect HHL's title.

30. On the other hand Mr Li for the Plaintiff submits that the deposit, although paid by HHL, could have been in the nature of a loan. Moreover, in the absence of any evidence as to why HHL came to be nominated by GFIL instead of Affluence City Property Limited, in the light of the GFIL minutes, there must be a doubt as to whether the Nomination was effective.

31. For my part I take the view that on the face of the documents HHL did obtain the legal title. However, the question that has to be asked is whether, in the light of the inconsistency appearing between the GFIL minutes and the Nomination, Affluence City Property Limited can have any legitimate basis to set aside the Assignment of the property to HHL. The only conceivable way that I can see Affluence City Property Limited having any basis to set aside the Assignment to HHL is if there had been a fraud practised upon Affluence City Property Limited and that HHL had notice of such fraud upon Affluence City Property Limited or was a party to it in which case the Assignment to HHL would be voidable at the instance of Affluence City Property Limited.

32. While there is an apparent inconsistency when one looks at the GFIL minutes and the Nomination together, this inconsistency does not, without more, point in the direction of a fraud being practised on Affluence City Property Limited. Moreover, it is now seven years down the road from the time the Assignment to HHL was executed and there is no indication that Affluence City Property Limited has taken any steps to set aside that Assignment. For these reasons I am not convinced that such apparent inconsistency is a defect going to the root of title.

Acceptance of Title

33. Mr Wong argues that the purchaser's solicitor, by their conduct, has accepted the vendor's title. The conduct relied on by Mr Wong are as follows:-

As opposed to this, Mr Li for the purchaser submits that in L&Y's letter of 22^nd March enclosing the draft Assignment and Letter of Undertaking, it was expressly stated to be "without prejudice to our requisitions raised".

34. In Farrand on Contract and Conveyance (4^th Ed.) at page 130 the author, commenting on the kind of conduct from which an acceptance of title can be implied says:

"The quality of conduct to be looked for involves the performance by the purchaser of acts which a prudent purchaser would not normally perform until a good title has been shown, i.e. not until completion would be bound to take place."

That is precisely the kind of conduct relied upon by Mr Wong when he submits that the purchaser has accepted title - in particular where L&Y in their letter of 22^nd March asks NTKC for instructions as to how their cheque for the balance of purchase price should be made out and how it should be split. This conduct coupled with their failure to persist in the requisition raised in their letter of 30^th January are the sort of acts a prudent purchaser would not normally perform until a good title has been shown. I therefore come to the conclusion that the purchaser, through the conduct of their solicitors L&Y, has accepted the vendor's title.

35. Moreover, I do not accept that the express words "without prejudice to our requisition raised" contained in L&Y's letter of 22^nd March alter that position in any way for it is inconceivable that had L&Y been serious about pursuing that requisition, they would not have taken any other steps to do so. The only conclusion that I can come to in the circumstances is that the "without prejudice" phrase was put there as a standard phrase for good measure, not something that L&Y meant with any degree of seriousness.

Conclusion

36. For the reasons above I find that the vendor has shown a good title to the property. The Plaintiff's Originating Summons is therefore dismissed. I will grant an order in terms of sub-paragraphs (a) and (b) of the Defendants' counterclaim which is contained in paragraph 15 of the Affirmation of Clarence Tam Yat Ming filed herein on 20^th June 1997. The other reliefs sought by the Defendants in the counterclaim will have to be pursued by them by way of other proceedings.

37. I will make the usual Order Nisi for costs of this application to the Defendants.