WONG FAI v. RANK CHANCE DEVELOPMENT LTD. AND ANOTHER

HCA18234/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.18234 OF 1998

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J U D G M E N T

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The plaintiff's claim

1. The plaintiff is seeking, among other things, specific performance of an agreement in which the 1st defendant agreed to assign to the plaintiff a house situated at Section A, Lot No.395 in Demarcation District No.94 in the New Territories ("the house").

The agreement

2. In 1990, the plaintiff reached an agreement with Mr Yeung Fook Hong ("Mr Yeung") and Mr Chan Chi Shing ("Mr Chan") in which Mr Yeung and Mr Chan would develop a piece of land in the New Territories. The 1st defendant eventually was acquired by Mr Yeung and Mr Chan to carry out the development. The development involved the building of twelve houses on the land. These are the small village houses that indigenous men in the New Territories are entitled to build in the New Territories. The development would involve the acquisition of land, acquiring from the indigenous men their entitlement to build small village houses ("the house rights"), seeking a building licence from the government to build the houses in the name of the indigenous male and when the construction is completed, transferring the house to the purchasers from the indigenous men subject to the payment of land premium to the government. As the assignment would be made within five years of the completion of the house, land premium is required to be paid to the government.

3. The plaintiff and a group of seven other purchasers took part in the development. They would be allotted one house each while Mr Yeung and Mr Chan would keep the remaining four houses. The plaintiff's house would cost $860,000. This included $550,000 for construction costs, $45,000 for acquiring the house rights and the rest for administrative fees and other expenses. The construction was intended to take two years.

4. A written draft of the agreement was prepared by Mr Yeung, but it was not signed by the plaintiff. The plaintiff at that time was working in a company owned by Mr Chan and he trusted Mr Chan. The purchasers subsequently chose their houses shown on the plan. The defendants stated that the participants signed a formal agreement on the development in a solicitors' office. The signed document, however, was not produced in court because, according to the defendants, it was apparently lost by the handling solicitor in that firm.

The delay

5. After the plaintiff had agreed to acquire the house, he had paid the money indicated in the draft Chinese document. However, the development was greatly delayed and the costs that the plaintiff had to pay for the house were greatly increased. The plaintiff had to pay for the increased costs from time to time. The plaintiff attributed the delay to Mr Yeung in failing to carry out the project diligently because Mr Yeung was not in Hong Kong at the beginning of the project. There were further delays because of the government's change of policy on small village houses which required applications to be made to the Town Planning Board and other government departments, and also because the original indigenous person whose house right was allotted to the plaintiff's house was imprisoned and another person was substituted. This is the 2nd defendant. When the licence to build was granted, there was further delay in the construction because of the problem with the builder.

The increased costs

6. The increased costs was due to hiring experts to make applications to the government, increased in construction costs and additional payment to the 2nd defendant to acquire the house rights.

The Certificate of Compliance

7. In March 1997, the plaintiff was informed that the Certificate of Compliance ("the Certificate") for the construction of his house had been issued and the plaintiff was allowed to occupy the house. The plaintiff had taken possession of the house since that time. The plaintiff, however, discovered that the Certificate in fact had not been issued, the house was apparently not built within the boundary and further applications had to be made to the government to rectify the situation. The Certificate was actually issued on 9 September 1998.

Request for payment

8. By a letter dated 17 September 1998 which the plaintiff said was received by him on 29 September 1998, the 1st defendant informed him that the Certificate had been issued. The 1st defendant requested the plaintiff to pay $1.2 million for the land premium, legal fees, fees for the sub-division plan and fees charged by the government. This amount was said to be subject to adjustment.

9. The letter also demanded the plaintiff to pay $29,980 which the 1st defendant had earlier requested the plaintiff to pay on 10 March 1997. This $29,980 included $20,000 being "lai see" for the transfer of the house right. The plaintiff said that he should not be liable for this because previously he had already paid an additional sum of $105,000 to acquire the house right from the 2nd defendant in place of the earlier holder of the house right. Mr Yeung and Mr Chan had also indicated that he needed not pay the $20,000.

10. The plaintiff said that at that time, he had lost confidence in the 1st defendant because of the delays and the increase in the money he had to pay to acquire the house. So, on 30 September 1998, he wrote back to the 1st defendant saying that he would pay directly the $1.2 million to the required parties instead of to the 1st defendant. He also said that $20,000 was supposed to be paid to the holder of the house rights but it was not known when the transfer would be made. He stated that upon receipt of the Certificate, he would pay the $9,980. The plaintiff said he was prepared to pay the $20,000 despite the earlier promise that he needed not pay this sum.

11. The plaintiff stated that he had paid $1,671,206.55 to the 1st defendant to acquire his house, while the 1st defendant only admitted payment of $1,510,571.55. Although the plaintiff initial claimed the repayment of the money that he had paid to the 1st defendant in excess of the original agreed sum of $860,000, this claim was abandoned by the plaintiff at the end of his evidence-in-chief. He also abandoned his claim for damages for delay in the completion of the agreement.

The defence

12. The defence raised by the defendants is that, first, the plaintiff had repudiated the agreement and the repudiation was accepted by the defendants. The repudiation relied upon by the defendants is that the plaintiff had failed to pay :

1) $9,980 on account of expenses of costs of public utilities payable by the plaintiff;

2) $5,500 on account of legal expenses for a deed poll;

3) $600 on account of expenses for registration of the Certificate; and

4) $20,000 being "lai see" payable to the 2nd defendant.

13. Second, the assignment to the plaintiff of the house is subject to the payment of the land premium which has not been paid by the plaintiff.

14. Mr Cheung, counsel for the defendants, submitted that there was also an act of repudiation by the failure to pay the premium. This is not pleaded. In my view, the defendants are bound by the pleadings and cannot rely on this new allegation.

15. The acceptance of the plaintiff's repudiation is said to be by the service of the defence and, as a result, the defendants claimed that they were entitled to forfeit all the money paid by the plaintiff.

16. The defendants abandoned a further claim of repudiation by reason of the plaintiff's pleadings in the Statement of Claim.

Nature of the agreement

17. The defendants argued that the agreement between the parties was not a sale and purchase agreement, rather it was a participating agreement and the parties were expected to contribute further sums from time to time.

18. It is not necessary for me to find a label for this agreement between the parties. Certainly, Mr Yeung had admitted in his evidence that under the original agreement, the cost would be $860,000 and the completion period would be about two years. He further accepted that the original agreement was not one in which the participants were required to contribute further sums from time to time. I find that the Chinese draft agreement sets out the terms upon which the parties had agreed on their legal relationship.

No repudiation

19. I do not consider that the plaintiff had repudiated the agreement either by the non-payment of the four sums or the premium. The letter of 30 September 1998 from the plaintiff did not indicate that he had refused to pay for the $29,980 which consisted of $20,000 "lai see" and $9,980 for other expenses. He was asking for the proof of the Certificate. The plaintiff said that the Certificate had never been provided to him by the defendants. As to the payment of $20,000 "lai see", it was for the purpose of transferring the house to him. On 17 September 1998, the premium had not been assessed. It was only on 20 November 1998 that the government informed the 2nd defendant of the assessment.

The solicitors

20. The defendants said that their solicitors had, by a letter dated 27 November 1998 to the plaintiff's solicitors, demanded the plaintiff to pay the premium before 10 December 1998. A further letter dated 18 December 1998 asked for the payment of premium before 31 December 1998. Both letters were not received by the plaintiff. The plaintiff said his solicitors informed him that they had not received these two letters. Mr Jim, the solicitor for the plaintiff, said that he had not received the two letters. In fact, on 18 December 1998, he wrote to the defendants asking for the amount of the premium. If he had received the earlier letter of 27 November 1998, there was no need for him to write on 18 December 1998. These two letters were not disclosed in the defendants' original list of documents. They were only disclosed in December 2000. Mr Lo, the solicitor for the defendants, said that he had signed the two letters and his secretary would arrange for them to be posted.

21. I find both solicitors to be truthful witnesses and what they said in evidence were true. It was submitted by Mr Cheung that if Mr Jim had not received the defendants' letter in response to his enquiry, then why did he not chase after the defendants' solicitors. This is not a question that was put to Mr Jim. There may well be explanation if this question was asked. The fact is somehow these two letters were not received by the plaintiff's solicitors, either they had not been posted or that they were not delivered by the post office to the plaintiff's solicitors. It is not possible for me to determine the exact reason. In any event, the plaintiff had not been told about the exact amount of the premium by the defendants' solicitors.

The plaintiff's means

22. I am satisfied that the plaintiff had the financial means to pay for the premium. He had, prior to moving to the house, sold his former residence gaining $1.2 million in the transaction. He has spent about $300,000 to $400,000 in decorating the house. While he admitted that he personally had only $800,000 in cash, there was no reason to doubt that he could not find the balance to pay for the premium.

Certificate not provided

23. In my view, because of the long delay in the development, the plaintiff was entitled to be cautious and withhold payment of the premium, which had not been assessed, and other expenses until he was sure that the Certificate had been obtained. There was clearly justifiable ground for this because by the defendants' own admission, they had made a mistake about the Certificate having been issued. After the plaintiff's letter of 30 September 1998, the defendants had not contacted the plaintiff. They had not provided him with the Certificate.

The Chinese draft

24. The defendants referred to clause 4(c) of the Chinese draft agreement which provided that :

"（四）c) 各業主得在下訂金前，清楚了解分期付款日期及應付金額，依期交付於發展商，倘有供款不足或逾期情況，發展商有權收取利息，（同業議價或實際借貸利息），或逾期費用，甚至有權維繫整體發展利益而終止與該業主之合約，在此以前之一切費用不於退回，及保留由此而引致之損失的追究權利。"

Clause 6 of this draft set out the payment terms that :

"(六) 分期付款支付日期及金額。

(A) 按發展商和業主議定及臨時售樓合約之售價，按下述方案支付。

(B) 臨時合約簽定時，付樓價百分之五。

(C) 距簽約三十天內再付，樓價百分之二十。

(D) 地政署批地完成，丁屋上蓋發展權要辦（估計在臨時合約6 個月），建築工程準備展開時，再付樓價百分之二十。（各業主可在接獲付款通知十天內清付）。

(E) 建築工程施工開始後六十天內，再付樓價百分之12.5。

(F) 餘款樓價百分之60.5，在各業主接獲入伙通知書後三十天內清付。"

25. The present outstanding sums for the land premium, "lai see" and other expenses are not those provided for under clause 6, hence the defendants cannot invoke clause 4(c) to terminate the agreement.

The English draft

26. The defendants relied on an unsigned English document which was faxed by the solicitors to the defendants in 1990. Although the defendants said that this was the final version of the agreement reached between the parties, there was no evidence that it was the case. Mr Cheng was one of the participants and called as a witness for the defendants. He attended the solicitors together with the plaintiff and others, but he could not recall if he had signed any documents before the solicitor. Although he did say that he should have because that was the purpose of going to the solicitors, he could not confirm the document he signed was that of the unsigned draft now relied upon by the defendants.

27. Mr Yeung of the 1st defendant said that the solicitor had explained the content of the English agreement to the participants, it was basically the same as the Chinese draft. However, Mr Yeung admitted that he could not read English well to understand the content of the English draft. Although he said the signed English document was basically the same as the one that was faxed to the 1st defendant by the solicitor prior to some of the participants signed it, the defendants had failed to establish that the signed English document was exactly the same as the faxed copy.

28. Clause 6.02 of the English draft stated that :

"6.02 The Participant undertakes with the Developer that the Participant shall pay to the Developer the Premium within 7 days after service by the Developer on the Participant a notice in writing requesting from payment of the Premium."

And clause 9.01 stated that :

"Time shall be of essence of this Deed."

29. As the defendants were not able to establish that the English draft is the one that was eventually signed, the defendants could not rely on these two clauses as the basis on which the rights and obligations of the parties are to be determined.

Time of the essence

30. Mr Cheung further submitted that by the nature of the transaction, time is of the essence of their agreement. The plaintiff had failed to pay the premium within the extended time granted by the government.

31. First of all, I had already held that the defendants cannot rely on the time is of the essence clause in the English draft. Secondly, considering the long delay in the development of the house and the repeated compromises and changes, I do not find time to be of the essence. No doubt the plaintiff had agreed to pay for the premium, but if the defendants should treat time to be of the essence, then they should give notice to the plaintiff specifying this need : see Snell's Equity, 30th Edn, para.40-60.

32. While the letter of 27 November 1998 imposed a deadline of 10 December 1998 for the payment of the premium, and the letter stated that the defendants :

"shall hold your client for loss and damages arising from the default on his part and no further written correspondence will be entered into in this regard,"

there is no similar provision in the further letter of 18 December 1998 when the defendants informed the plaintiff that the District Lands Office had extended the payment of premium to 31 December 1998.

33. In Millichamp and Others v. Jones [1982] 1 WLR 1422, it was held that an omission by oversight to pay deposit on time would not necessarily debar a purchaser from obtaining specific performance and the court held that more should be given to the purchaser to comply with the obligation before the omission could be treated as a repudiation. In my view, the same approach should be adopted in the present case, the plaintiff obviously wished to have the house transferred to him. The non-payment of the premium is not due to his inability or refusal to pay.

Document of 15 January 1996

34. The defendants further relied on clauses 2 and 6 of a document dated 15 January 1996 signed by the plaintiff. Clauses 2 and 6 provided that :

"(2) 甲方將根據乙方修定的各項工程費用細則，依期繳付各項承建費用，不得違約，逾期付款者，乙方有權追加逾期費用，包括利息及因逾期而引致的各項費用，甲方不得異議，必要時，乙方有權將上述物業，地皮，丁權拍賣，款項用於支付因逾期付款或中途退出或毀約的種種損失，並保留追討因此而引起之連鎖性責任和經濟損失。"

"(6) 甲方必須在有整個承建工程完成交付使用前，清繳一切有關費用，否則乙方有權停止交付使用，並按本文第（2）條款處理。"

This is a document signed by the plaintiff when the parties discussed additional costs and delays in the development. In another document of the same date signed by the plaintiff, clauses 5 and 6 provided that :

"(5). 工程費用每幢計為港幣一百萬圓，此款項包括：

A．按圖則每層700呎三層高丁屋一幢建築費

B．則師驗收費

C．公用衛星天線費

D．綠化費

E．外圍檣，渠務，車路，車位，工程費

F．保安費

此費用在收到通告及簽定物業發展協議後分十期之付，第二期為1996年2月1日敝司不作追討。

(6). 各幢主所需自行負責費用有補價，轉名，分契，律師費，....等"

35. Clause 2 in the earlier document must be referable to clause 5 in this document. The payment of $1 million under clause 5 was by ten instalments. It is not even suggested that the demand on 10 March 1998 is part of the $1 million fee. If it is not within the terms of clause 5, I fail to see how the defendants can rely on clause 2 in the earlier document. The defendants, by their own admissions, agreed that clause 6 does not apply to fees such as payment of premiums and expenses for the transfers.

Other demands

36. No evidence was adduced on when the defendants made any demand on the plaintiff to pay $5,500 for the sub-division and $600 for registration of the Certificate. Mr Cheung, in his submission, abandoned any reliance on the non-payment of these two sums. The plaintiff, however, is prepared to pay these sums in order to complete the sale.

The 10th instalment

37. Mr Yeung alleged in his evidence that the tenth instalment of construction fee was paid by the plaintiff, not to the 1st defendant, but to another company, namely Good Connection Limited, in which the plaintiff, Mr Yeung, Mr Chan and another person were directors. The tenth payment was made in 1996. A receipt was issued for this payment by the 1st defendant. No issue was raised on this point in the defence which had been amended twice. I find that the plaintiff had established that this was indeed payment of the tenth instalment.

Relief against forfeiture

38. In any event, this is a classic case for relief against forfeiture even if the defendants are entitled to exercise the right of forfeiture : see the Privy Council decision of Union Eagle v. Golden Achievement [1997] AC 514. There is no breach of any essential term of the contract. The construction took seven years to complete. Although the defendants had given explanation for the delay, it does not mean that they had discharged the responsibility in having a house completed in about two years as originally agreed. While the plaintiff had eventually accepted the delay and abandoned all claims for damages, the reality was that he had no real alternative, considering the commitment (in terms of payment) he had made and the prospect of having his earlier payment forfeited if he withdrew before the completion of the building. Mr Yeung admitted that he had in fact said this to the plaintiff before the construction of the house.

39. The plaintiff had since 1990 regularly paid for the construction and other costs of the house. Apart from the land premium, the outstanding claims are relatively minor sums. It would be extremely harsh and inequitable for the defendants to forfeit all the plaintiff's previous payments at the tail end of this transaction. The house had not been assigned to others, the plaintiff had moved into possession and occupied the house since 1997. The only appropriate order in this case, if such an order is required, is to grant the equitable relief against forfeiture.

Business disputes

40. There is suggestion that because of the business disputes between the plaintiff, Mr Yeung and Mr Chan, the defendants were not prepared to arrange for the transfer of the house to the plaintiff unless he paid $400,000 due to Good Connection Ltd. I do not think this is a matter I need to make any findings. The case can be decided without regard to whether the defendants deliberately obstructed the transfer unless the plaintiff paid the $400,000.

The action

41. On 17 October 1998, the plaintiff's solicitors wrote to Yam & Co. who was the defendants' solicitor, referring to the absence of the Certificate and the consent by the District Lands Office to alienate the land to the plaintiff. The letter then stated that :

"Without prejudice to our client's rights in the matter to claim against your client for return of the money paid as aforesaid as well as damages with interest and costs, please let us have all relevant title deeds and documents in respect of the Ground Floor, 1st Floor and 2nd Floor (with Roof) of the building erected on the Land for our perusal. Our client is not bound to, but would consider, whether or not he shall enter into any agreement for sale and purchase of any property subject to further negotiation of the terms and conditions."

The response they received on 19 October 1998 from Yam & Co. was that Yam & Co. did not have instructions to deal with the allegations made in this letter. Either the defendants had chosen not to give instruction to Yam & Co. or instructed them to respond in such a manner. This being the state of play, the plaintiff was clearly justified to commence proceedings on 25 October 1998, seeking specific performance of the agreement.

Specific performance

42. Specific performance is a discretionary remedy. I find that the plaintiff had not repudiated the agreement. What else is there to prevent such a remedy being ordered. The defendants' attitude is a curious one. The plaintiff had taken possession of the house since March 1997 and has been in possession since. There is no evidence of any steps being taken by the defendants to evict the plaintiff, particularly if their case is that the plaintiff had been in breach of the agreement.

The deed of mutual covenant

43. It is said that because of the plaintiff's failure to pay premium, a deed of mutual covenant cannot be signed and the other purchasers to this project cannot get the title to the car parks situated on the land of the plaintiff. This is said to be one of the obstacles to the relief for specific performance. The fact is that the purchasers had been using the car park and there is no evidence that the purchasers had alleged any breach by the defendants to confer good title or of any damages that they had suffered. As a result of this, I am not satisfied that this is a reason for not granting specific performance.

The 2nd defendant

44. Mr Yeung said that the 2nd defendant may now be reluctant to assign the property. The 2nd defendant is a party to this litigation and he had not given evidence on his stand. In any event, the 2nd defendant, being a party, is bound by the decision of this court.

Time limit

45. The government imposed a time limit for the payment of premium. There is no evidence that the government would not extend the time although the previous time limit had already expired. The responsibility of the defendants in this transaction is to assign the legal ownership of the house to the plaintiff. If they are now alleging that this can no longer be done, then they have to adduce evidence on this. In my view, there really is no impediment to specific performance.

Relationship between the plaintiff and the 2nd defendant

46. In the present case, after the 1st defendant had purchased the land where the plaintiff's house is situated from the owner, it assigned the land to the 2nd defendant because the 2nd defendant was the one who had the right to build the small house, and obtaining from the 2nd defendant a Power of Attorney authorizing the 1st defendant to deal with the matter.

47. It is submitted by Mr Cheung that there is no contractual relationship between the plaintiff and the 2nd defendant. This point had not been taken in the pleadings. Although the body of the Re-amended Statement of Claim only deals with specific performance against the 1st defendant, the prayer actually seeks specific performance against both defendants. The defendants are not in any way prejudiced. Despite the so-called lack of contractual relationship now relied by the defendants, both of them had actually counterclaimed against the plaintiff. In my view, the 2nd defendant is inextricably linked to the transaction. While he had granted a Power of Attorney to the 1st defendant, there is no express provision for the 1st defendant to apply for premium on the 2nd defendant's behalf. To ensure that specific performance can be properly carried out, the order has to be made against both defendants.

Resulting trust

48. As to the further relief sought by the plaintiff, namely, a declaration that the defendants are holding the property upon trust for the plaintiff, Mr Cheung submitted that there could not be any resulting trust because the small house policy prevents persons taking undue advantages of this policy. Clause 4 of the Building Licence for the building of the house expressly prohibits transfer of the small house within five years unless a premium has been paid.

49. I do not see how this would defeat the creation of trust in favour of the plaintiff. There is no question of any public policy being infringed in the present case because the agreement provides for the payment of premium as the condition for the transfer of the house to the plaintiff. Mr Cheung referred to Kok Chung Ho v. Wong Chuen Sang [1968] HKLR 1 in which the Full Court dealt with the question of illegality in the use and transfer of a tenancy in a resettlement estate. That case is clearly distinguishable. In Sung Wai Kiu & Another v. Wong Mei Yin [1997] 1 HKC 288, Yeung J was of the view that an agreement involving the sale of village house is not illegal.

50. The defendants are clearly holding the house on trust for the plaintiff. The fact that the 1st defendant is the agent of the 2nd defendant does not mean such a declaration cannot be granted. The 2nd defendant is the legal owner and the 1st defendant clearly has an interest in the house in view of the investment it had made.

Counterclaim

51. The defendants' counterclaim is based on the repudiation of the agreement, this I have found against the defendants. In any event, no evidence had been adduced on the alleged damages or mesne profits sought by the defendants.

Conclusion

52. In my view, the plaintiff is entitled to judgment.

(1) I shall grant a declaration that the defendants are holding the house on trust for the benefit of the plaintiff.

(2) I shall order specific performance against the defendants of the agreement by requiring the defendants to take all necessary steps and execute all necessary documents to transfer the house to the plaintiff. This is subject to the plaintiff paying within 14 days :

(i) the premium of $960,500 or such other sums as the government may impose for the transfer of the house;

(ii) $29,980;

(iii) $5,500; and

(iv) $600.

53. The defendants' counterclaim is dismissed. I give liberty to both parties to apply in respect of the order for specific performance.

Costs

54. The plaintiff is entitled to the costs of this action.