WELL LOCK LTD v. RESERVE INVESTMENTS LTD

DCCJ2111/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2111 OF 2011

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J U D G M E N T

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Introduction

1.  This trial concerns the plaintiff’s claim to specifically enforce an agreement for the sale and purchase of the property known as the 3^rd Floor of No 36 Jordan Road, Kowloon, Hong Kong (the “Property”).  The plaintiff was the purchaser.  The defendant was the vendor.

Background

2.  The history of the transaction was divided into two episodes. In the first episode, the plaintiff and the defendant entered into a formal sale and purchase agreement dated 28 August 2008 in respect of the Property.  The plaintiff was represented by Messrs Joseph CT Lee & Co (“JCTL”) and the defendant was represented by Messrs Yung, Yu, Yuen & Co (“YYY”). The completion of the purchase was scheduled for 31 October 2008.  However, the transaction was not completed due to the existence of some illegal structures at the Property.  Negotiations between the plaintiff and the defendant were in vain.  On 12 December 2008, the plaintiff informed the defendant that it was not in a position to complete the sale and purchase of the Property.  This ended the first episode of the transaction.

3.  Before the second episode began, there were without prejudice discussions conducted between solicitors for the return of title deeds and deposit.

4.  The second episode commenced about one year later.  In around October 2009, the parties recommenced their negotiation for the sale and purchase of the Property.  On 19 October 2009, JCTL sent a letter to YYY making an offer on behalf of the plaintiff to purchase the Property at HK$2,420,000 and the same offer was also passed to the defendant through the estate agent, one Ms Yu Shuk Wa of Kam Fu Property Company (“Ms Yu”).  On 9 November 2009, YYY replied with a counter-offer of HK$2,500,000.  On 22 December 2009, JCTL made a further offer of HK$2,430,000.

5.  The important and crucial part of the events commenced on 8 January 2010 when JCTL sent a letter to YYY saying that the plaintiff “has no objection to the sale price of HK$2,500,000 with vacant possession” and requested for inspection of the Property.  It is important to note that the said letter was marked “subject to contract” and “without prejudice”.

6.  The inspection of the Property took place on 15 January 2010.  The inspection was attended by Ms Mak Wai Sum Rosaline (“Ms Mak”) of the defendant, Ms Tam Wai Man (“Ms Tam”) of the plaintiff and the estate agent Ms Yu.  During the inspection, there was no conversation between Ms Mak and Ms Tam.

7.  The plaintiff's case is that in the second episode, a new agreement was reached in respect of the sale of the Property (the “Revised Agreement”). In its original pleadings, the plaintiff alleged that Adrian Lo of JCTL and Lo Kai Shun (“Vincent Lo”) of YYY made the Revised Agreement on behalf of respectively the plaintiff and the defendant over the telephone, shortly before a letter from JCTL to YYY dated 18 January 2010.  The defendant denies the existence of the Revised Agreement.

Analysis of Evidence

8.  The main factual dispute is what happened after the inspection of the Property on 15 January 2010.

(1) On the plaintiff’s case: the estate agent Ms Yu told Ms Tam that Ms Mak confirmed the price of HK$2,500,000 with completion date on 23 March 2010 (according to Ms Tam’s oral evidence amplifying her Witness Statement).

(2) On the defendant's case: Ms Mak informed the estate agent Ms Yu that HK$2,500,000 was not acceptable.  However, if a deal could be made, the completion date would better be in early March or early April 2010.

9.  Unfortunately, neither party has direct evidence to rebut the other side's case because the estate agent Ms Yu refused to give evidence.  The court thus has to decide where the truth lies in the absence of such evidence.

10.  It goes without saying that the burden is on the plaintiff to prove on a balance of probabilities the existence of the Revised Agreement.  In this regard, it is important to note that the plaintiff’s case went through a substantial reformulation on the first day of trial.

11.  As mentioned in paragraph 7 above, in the original Answers to Request for Further and Better Particulars of the Statement of Claim dated 16 April 2012 (“F&BP”), the plaintiff's case was clearly pleaded on the basis that the Revised Agreement was made between Adrian Lo and Vincent Lo over the telephone.  On the first day of trial, the plaintiff applied to amend the F&BP so that the most important terms of the alleged Revised Agreement are now said to be “agreed on by the Plaintiff and the Defendant through the estate agent after the inspection on 15 January 2010 and before JCTL issued its letter dated 18 January2010 to YYY & Co”. 

12.  Under the reformulation of the plaintiff's claim, Adrian Lo and Vincent Lo were only responsible for making the agreement “as to the Defendant's undertaking to remove all debris and furniture” and such agreement was made “after” the letter of JCTL dated 18 January 2010 was sent to YYY.

13.  The change in the plaintiff's case is fundamental.  In the original case, the Revised Agreement was alleged to have been entirely made by solicitors but now the plaintiff alleges that it was essentially made by clients through the estate agent.  The solicitors' involvement is now very much limited.

14.  According to his evidence, Adrian Lo is a qualified solicitor with more than 20 years of experience.  He is now a partner of JCTL and has a conveyancing practice.  Adrian Lo was fully aware of the difference between an oral agreement and a written agreement.  In particular, he was aware that oral agreements in conveyancing matters require special attention because of the difficulties in proving oral agreements and the “evidence in writing” requirement.

15.  In my view, given Adrian Lo's experience as a solicitor, it would not be possible for him to have made such fundamental mistakes inadvertently or accidentally when pleading the plaintiff's case in its original form.  The only reasonable explanation for the late reformulation at trial was a real change of stance not only on the part of the plaintiff, but also on the part of Adrian Lo. I agree with Mr Alex Y H Lai, counsel acting for the defendant at trial, that the following matters are relevant in this regard: -

(1) In the F&BP, the Revised Agreement was pleaded to have been made between solicitors over the telephone shortly before the letter dated 18 January 2010.  Under cross-examination, Adrian Lo admitted that there was no telephone conversation before the said letter;

(2) The F&BP positively averred authority of solicitors, but never touched upon the authority of estate agents;

(3) Ms Tam's two Witness Statements simply contained no allegation of any agreement made through the estate agent;

(4) On the strength of the plaintiff's originally pleaded allegation, the defendant issued third-party proceedings against YYY for making the oral agreement on behalf of the defendant without instructions.  The Third Party Statement of Claim averring agreements between solicitors was served on Adrian Lo;

(5) Adrian Lo attended 2 Pre-trial Reviews in respectively November 2012 and February 2013.  No application was made for the amendment of the F&BP on those occasions; and

(6) Adrian Lo said he was not aware of the problem with the pleadings until after the second Pre-trial Review.

16.  At all stages up to the commencement of trial, the plaintiff's allegation in no uncertain terms had been that the Revised Agreement was made between Adrian Lo and Vincent Lo acting for and on behalf of the plaintiff and the defendant respectively over the telephone.  In the circumstances, the plaintiff's new case that the oral agreement was instead made by clients through the estate agent is simply not believable.  The plaintiff has not put forward any credible reason for the drastic change of stance.  I have no hesitation in rejecting the plaintiff's case on a balance of probabilities.

17.  Understandably, Mr Mike Lui (counsel for the plaintiff at trial), in his closing submissions, make scathing attack on the evidence of Vincent Lo, saying that he is “bankrupt in credibility”.  In particular, Mr Lui dwelled on the glaring inconsistencies between his first Witness Statement and his Supplemental Witness Statement.

18.  Whilst I accept most of Mr Lui’s criticism of Vincent Lo’s evidence (and as a result, have decided to reject the same), my view of Vincent Lo’s lack of credibility as a witness does not affect the evidence of Ms Mak.

19.  I have had the opportunity to observe Ms Mak giving evidence at trial.  I find her to be a truthful witness giving consistent evidence in a straightforward manner and unshaken in cross-examination.

20.  In conclusion, I find that the defendant's case is more likely than not to be true, and I accept the same on a balance of probabilities. I hold that the plaintiff has failed to establish the existence of the alleged Revised Agreement.

21.  Given the factual determination which I have made, it is not strictly necessary for the court to further consider the various legal issues raised by the parties.  I shall just briefly discuss those legal issues for the sake of completeness.

Subject to Contract

22.  As pointed out in paragraph 5 above, the letter from JCTL to YYY dated 8 January 2010 was marked “subject to contract”.  It is clear and well settled that “subject to contract” means subject to exchange of formal contract (see: Eccles v Bryant and Pollock [1948] 1 Ch 93; D’Silva v Lister House Development Ltd [1971] 1 Ch 17; Pakwell Investment Ltd v CRC Department Store Ltd, HCA 13181/1999 (Judgment of Deputy High Court Judge Woolley dated 23 January 2002)).

23.  Adrian Lo claims that, subjectively, he had intended the label to mean only that the sale and purchase was subject to further agreement, be it oral or in writing, between the parties.  With respect, this is neither here nor there. It is trite that when construing a written agreement, the agreement must be interpreted objectively: the question is not what one or other of the parties meant or understood by the words used but rather what a reasonable person in the position of the parties would have understood the words to mean (see: eg, paragraph 12-043 of Chitty on Contracts, 31^st edition).

24.  Negotiations which began under the umbrella of “subject to contract” continue to be so qualified even if subsequent letters do not expressly use the phrase, until the formula is expunged either expressly or by necessary implication (Pakwell Investment, Supra, at paragraphs 13 and 14).

25.  In the present case, there is no evidence that the formula was expunged either expressly or by necessary implication.  To the contrary, the evidence clearly indicates that the parties were expecting exchange of formal agreement (D’Silva v Lister House Development Ltd, Supra, at 29B-D).

26.  I agree with Mr Alex Lai that the proper inference to be drawn is that the parties were expecting a formal agreement to be executed.  The agreement was not binding until the execution and exchange of the same.  This provides additional reason why the plaintiff's claim should be dismissed.

Evidence in Writing: section 3(1) of the Conveyancing and Property Ordinance, Cap 219

27.  Section 3(1) of the Conveyancing and Property Ordinance, Cap 219 (“CPO”) provides as follows:-

“Subject to section 6(2), no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorized by him for that purpose.” (Emphasis added)

28.  The memorandum or note in writing relied upon by the plaintiff was a letter dated 28 January 2010 signed by YYY sending the Supplemental Agreement for Sale and Purchase to JCTL (page 237 of the Trial Bundle).  The question is whether YYY was a person lawfully authorized by the defendant for the purpose of signing the letter as a memorandum of the alleged agreement in question.

29.  In the English Court of Appeal's decision in Smith v Webster (1876) 3 Ch D 49, it was held that the solicitors who sent out a draft agreement was not a person authorized for the purpose of section 4 of the Statute of Frauds (similar to section 3 of the CPO).

30.  The facts of Smith v Webster are as follows.  After entering into a verbal agreement for sale and purchase of a property, the vendor’s solicitors wrote to the purchaser's solicitors: “[vendor] has been with us to-day, and stated that he had arranged with your client [purchaser] for the sale to the latter of the Lion Inn for £950.  We therefore send herewith draft contract for your perusal and approval”.  It was held that the vendor's solicitor is not a person authorized, therefore the letter cannot satisfy the requirement of the Statute of Frauds.

31.  In giving his judgment, Lush J said this at page 58:-

"In order to satisfy the statute a note or memorandum must be one which the principal has authorized the agent to sign as a record of the transaction.  Now the authority to the solicitors here was not to write a letter which should contain the terms of the contract, but merely to prepare a formal draft contract to be sent to the other side for perusal and approval, and when perused and approved to be signed by the parties themselves.  That is all the authority which the solicitors had." (Emphasis supplied)

32.  I agree with Mr Alex Lai that in sending the letter of 28 January 2010, YYY was in the same position as the vendor's solicitors in Smith v Webster. The solicitors firm was not a person authorized for the purpose of section 3(1) of the CPO.  Accordingly, the requirement of that section has not been satisfied.

Part Performance

33.  The plaintiff's pleaded case on part performance is contained in paragraph 19 of the Statement of Claim.

“On 13 April 2010, the Plaintiff via JCTL tendered to YYY a cheque in the sum of HK$2,248,000 for the payment of the balance of the purchase price pursuant to the terms of the Revised Agreement, which act of payment was unequivocally part performance thereof".

34.  It is not in dispute that the payment so tendered by the plaintiff was never accepted by the defendant.  In my view, a mere tendering of payment by the party seeking to enforce an oral agreement cannot amount to part performance.  Otherwise, the requirements of section 3(1) of the CPO can always be overcome by tendering payment. This cannot be right.

Defendant’s counterclaim

35.  The defendant counterclaims against the plaintiff for the return of the title deeds of the Property delivered to the plaintiff in the original transaction.

36.  The title deeds were delivered to the plaintiff on the plaintiff's solicitors’ undertaking to return the same to the defendant immediately upon demand.  The demand for their return was made by YYY on 30 December 2008 after the plaintiff's failure to complete the original transaction.

37.  On my finding against the existence of the Revised Agreement, I see no reason why the title deeds of the Property should not be returned to the defendant pursuant to the undertaking.

Order

38.  For the foregoing reasons, I would dismiss the plaintiff's claim against the defendant in this action and allow the defendant's counterclaim against the plaintiff.

39.  As prayed for in the Re-amended Defence and Counterclaim of the defendant, I order the return of the title deeds of the Property by the plaintiff to the defendant.

40.  The defendant shall have the costs of this action and the counterclaim against the plaintiff, including any costs reserved (if any).  Such costs shall be taxed, if not agreed (with a certificate for counsel for the trial).

41.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

42.  Lastly, I thank counsel on both sides for their helpful assistance in this matter.