XCHRX CHOW YIM WOON v. LAM YUNG MING SARLINA

HCA 6379/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6379 OF 1999

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J U D G M E N T

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1. This is an application for summary judgment in respect of a sale and purchase of the property known as ground floor and garden, section C of Lot no. 1513 in DD 130, Ching Chuen Wai, Tuen Mun, New Territories (hereinafter called the property). The Plaintiff was the purchaser. However it is not so clear as to whether the Defendant was and remained to be the vendor.

2. In respect of this sale and purchase the Plaintiff entered into 3 written agreements.

3. The first agreement was a provisional sale and purchase agreement dated 23 September 1997 signed by the Plaintiff as purchaser and the Defendant as vendor.

4. The second agreement was dated 23 September 1997 also signed by the Plaintiff as purchaser and the Defendant as vendor.

5. The third agreement was called Formal Undertaking and it was dated 22 October 1997. The parties were described as the advance purchaser (訂購人) and promisor (承諾人) respectively. The Plaintiff was the advance purchaser, and one Joinrex Developments Ltd (hereinafter called "Joinrex") was named as the promisor. However it would appear that the Defendant was the person who signed on behalf of Joinrex. The exact relationship between the Defendant and Joinrex was never clear. In the correspondence the Plaintiff alleged that the company was the agent of the Defendant there was no admission by the Defendant that such was the position. It remains to be an issue which would have to be determined.

6. By the term of the provisional sale and purchase agreement, the Defendant agreed to sell to the plaintiff the property at a price of $1.9 million. The price is payable in the manner provided in clause 2 of the agreement. The agreement further contained the following material clauses:

"(Clause 2)

(a) Hong Kong $50,000 shall be paid on the signing of this Agreement as initial deposit;

(b) HK$330,000 shall be paid up at the time of signing the formal sale and purchase agreement/the purchase confirmation as deposit of 20% (of the purchase price) (after deduction of the initial deposit paid) which shall be duly signed on or before 23 October 1997;

(c) .....

(d) HK$1,330,000 shall be paid up at the time of completion of the sale and purchase as all the balance of the property price.

(Clause 3)

The completion date of the sale and purchase of the said property is shall be confirmed after the developer's due payment of the land premium.

(Clause 4)

If after the signing of the (said) Agreement, the solicitors firm discovered that there is doubtful title problem or there is insufficient (title) document and therefore, the transaction cannot be completed, then (all) deposits paid (by the buyer shall be returned (to the buyer) and the commission be returned to the seller and the buyer; both parties cannot further pursue the liabilities or claim for damages.

(Clause 5)

Both the Buyer and the Seller shall go to the office of the solicitors/developer on the appointed date to handle the procedure of signing agreement....

(Clause 7)

If the Seller after receipt of the deposit fails to sell the said property to the Buyer in accordance with (this) Agreement, then the Seller shall, in addition to the need to return all the deposit paid, compensate the Buyer with the same amount of the deposit as his loss and the Buyer shall not request further compensation (and) force the Seller to perform this Agreement.

Remark:

The said property is a "ting (丁)" house land and the developer undertakes to pay the land premium $700,000.

2bIII) when the building completes up to 2nd floor, to pay the third ten percent of the price of the property i.e. $190,000.

The buyer shall pay a transfer fee $10,000."

7. It is thus quite plain that at the time of this provisional agreement, the parties realised that the subject property was part of a small house (丁屋) which was yet to be constructed. The Plaintiff must realise that the building works for the building in which the property was situated had not yet commenced because on the Plaintiff's case, at the time of the agreement, the Defendant told him that the construction work would commence in February or March 1998.

8. The parties also signed the 2nd Agreement on 23 September 1997. This agreement would appear to be a supplement to the first agreement. It provided that both parties agreed that they shall go to the place of the developer to handle the procedure of purchase on 23 October 1997. In this way, the alternatives given in clause 2(b) of the first agreement viz. that on 23 October 1997 the Plaintiff was to pay the sum of $330,000 at the time of either signing of the formal sale and purchase Agreement or the "purchase confirmation" had been resolved by the parties in the way that the parties now agreed that on 23 October 1997, the parties were to go to the place of the developer to go through the "procedure of purchase" there. It is also notable that under this second Agreement, the Plaintiff was to pay an additional sum of $100,000 as consideration for the transfer of the property.

9. On 22 October 1997, the Plaintiff entered into the Formal Undertaking with Joinrex. However in pursuance of the 1st and 2nd Agreements, the Plaintiff paid the further sum of $430,000 [i.e. $330,000 + $100,000] to the Defendant. On top of that the Plaintiff also paid the sum of $10,000 as transfer fee under the Remark column of the 1st Agreement. It is important to note that in this Undertaking, there was an acknowledgement on the part of the Plaintiff that the Plaintiff was aware of and understood the terms and conditions contained in the Government Lease and Building Licence affecting the lot. It is also plain from the terms of this Undertaking that the Plaintiff was not having any direct contractual relationship with the registered owner of the lot. What was agreed was that Joinrex as the Promisor would cause the registered owner to reserve the property for subsequent sale to the Plaintiff and would procure the registered owner to sell and transfer the property one month after the consent to assign was issued.

10. The small house (丁屋) scheme is peculiar to the New Territories. Under this scheme the Government would grant a building licence to a certain indigenous villager holding non building land to allow him to build on his land a house of a certain specified dimensions. The building licence will contain standard conditions prohibiting him from disposing of any interest in the land or entering into an agreement so to do, unless the building is completed and unless premium has been paid. Thus before the completion of the building, and before the premium was assessed and paid, if the grantee of the building licence should enter into any agreement to dispose of his interest in the building to be built, then the building licence is liable to be revoked and upon the revocation of the licence, the building of houses on the non building land would constitute a breach of the Crown lease and the Government may re-enter.

11. Section C of lot 1513 in DD 130 was registered in the name of one Tsang Tin Mei since 7 June 1997. The relevant building licence was granted on 29 September 1998, and the relevant certificates of exemptions were issued on 21 October 1998. The consent of the District Lands Office to the opening of side windows was issued on 26 October 1998. The house boundary was set out by the District Survey Office on or about 17 December 1998. Thus actual building works could commence after 17 December 1998 and was still in progress.

12. On 15 December 1998, the Plaintiff through his solicitors wrote to the Defendant to ask for the progress and also the schedule for the completion of the building. In this letter the Plaintiff alleged that various representations were made to him which turned out to be untrue. At the same time, the Plaintiff's solicitors also asked for all the title deeds and related documents of the property for their perusal. This letter was replied to by Messrs John Chan & Co. as solicitors for both the Defendant and also Joinrex on 7 January 1999. In this letter the representations alleged by the Plaintiff were denied and the information on the progress of the development was related to the Plaintiff. On the request for title deeds, the solicitors simply replied that the duty to show good title was to do so within a reasonable time before completion so as to enable the Plaintiff as purchaser a proper opportunity to consider the title documents and to raise any requisitions thereon. The solicitors said that their clients would in due course discharge this duty but meanwhile the request for the title deeds was premature.

13. By a letter of 20 January 1999 the Plaintiff's solicitors wrote to say inter alia that from the land search, the Defendant was not the registered owner of the land and did not have any registered interest in the land at the time when she entered into the agreement with the Plaintiff. The letter said that unless the Defendant could show a good title to the property within 7 days, the Plaintiff would consider the Defendant's non action as a breach of the agreement.

14. On 5 February 1999, the Plaintiff's solicitors demanded the repayment of all the money paid and further said that

"as your client as a vendor did not have the right and title to sell the captioned property to our client on 23 September 1997, she was in breach of the express and/or implied condition of the said agreement, therefore, we are instructed to accept you client's repudiation of the said agreement if it was not void ab initio"

15. In reply the Defendant's solicitors queried the correctness of the allegation that the vendor need to have any right in the property before he could enter into an agreement for sale and purchase.

16. Before me, counsel for the Plaintiff told me that he would not rely on any misrepresentation for the purpose of his application for summary judgment. Obviously the issue of misrepresentation would give rise to triable issues and is not a matter which could be resolved in a summary way. However the Plaintiff maintained that on the ground that the defendant has failed to answer proper requisitions within reasonable time, and on the ground that the Defendant did not have any right to the property at the time of the agreement and any right which the Defendant may have (which she had not shown) would necessary involve a breach of the Crown lease giving rise to the risk of re-entry, the Plaintiff is entitled to summary judgment.

Failing to answer requisition satisfactorily within reasonable time

17. Counsel for the Plaintiff contended that by the time the Plaintiff's solicitor sought to raise requisitions for the supply of the title deeds, it was already 14 months after the signing of the agreement and the Plaintiff had already paid a very substantial sum of $490,000. It was contended that in these circumstances, the Plaintiff would be entitled to raise the requisitions and to demand a proper reply within reasonable time. The Defendant's answer did not amount to any proper answer at all. Indeed, I agree that the Defendant's answer did not indicate that the Defendant had any title to pass on to the Plaintiff nor had the Defendant shown anything which would indicate to the Plaintiff as to how a good title to the property would be assign to the Plaintiff on completion.

18. As to this, the Defendant's answer was that as foreshadowed in her solicitor's letter of 7 January 1999 already, the obligation to show and prove a good title in this case had not yet arisen. The Defendant was only obliged to show a good title within a reasonable time before the completion date. As completion would not take place until one month after the building was completed and the premium paid and the consent to assign given, the Defendant is not yet obliged to answer the Plaintiff's request.

19. I am of the view that the Defendant's contention is correct. As a matter of law, in the absence of any special provision in the contract, the vendor is only obliged to show that he has a good title to pass on to the purchaser on completion. Of course, he must give the purchaser reasonable time to consider what was offered to him, and this would mean that he would have to show a good title and answer the requisition within a reasonable time before completion (see Active Keen Industries Ltd v. Fok Chi Keong [1994] 1 HKLR 396, 406 lines 30-36). I do not think that the fact that under the agreement the Plaintiff as purchaser had already had to make a number of payments is relevant to the question of time for showing a good title. The time for the payment was separately provided in the agreement and the obligation to make these payments (excepting the last one which is payable on completion) is unrelated to the question of title to the property.

Clause 4 argument

20. However the Plaintiff also relied on clause 4 of the 1st Agreement and said that since the Plaintiff's solicitors had not been supplied with the title deeds and on their investigation from the land search it was discovered that the Defendant was not the registered owner and had no registered interest in the Property, the title was at least doubtful and so the Plaintiff would be entitled to the refund of the deposit under clause 4.

21. I do not consider that clause 4 had any effect of moving forward the time in which the vendor is to discharge her obligation to show a good title. It is important to note that clause 4 did not provide specifically the time for the proving of title, nor did it say that whenever the Plaintiff's solicitor was not satisfied that a good title was shown there is a right to rescind and to recover the deposit. In my view, the effect of clause 4 is that in event of a title problem arising and the title problem had caused that the transaction could not be completed then there is a right to rescind. Since the obligation to show a good title would not arise until a reasonable time before completion whether there was any title problem then could still not be ascertained. Accordingly I do not consider that the Plaintiff had shown a clear right to rescind under clause 4.

The Defendant had no right in the property to sell

22. It was contended by the Plaintiff that there must be an implied term to the agreement that at the time of the agreement, the Defendant as vendor must have "some interest, right, title and/or capacity or ability to sell the subject property" or alternatively "some authority or some interest derived directly or indirectly from the registered owner" or "the power to bind directly or indirectly the registered owner to sell the property". The Plaintiff contended that this term must be implied as a matter of business efficacy or unexpressed intention of the parties. It is contended that plainly at the time of the agreement, the Defendant had no contract with the registered owner of the land so as to bind the registered owner to deal with the property in a manner which would enable to Defendant to compel the registered owner to assign the property to the Plaintiff on completion, hence the Defendant was in breach of this implied term with the consequence that the Plaintiff is entitled to rescind the agreement.

23. I have grave doubt as to whether there could be any such implied term. Certainly such term could not be implied as a matter of unexpressed intention of the parties (and not just the purchaser). I have doubts whether such term could be implied as a matter of law or business efficacy. In a case where the subject matter of the sale was a small house (丁屋) to be built, I would certainly consider there were at least triable issues on whether as a matter of business efficacy, a term ought to be implied to such effect. Whether such term could be implied is not just as a matter of law which I could decide on a summary judgment application, in such a case involving small houses, one must also investigate the small house (丁屋) scheme as a whole and also the prevailing conveyancing practice in relation to the small houses (丁屋).

24. The Plaintiff also contended that under section 35 and the First Schedule part II of the Conveyancing and Property Ordinance, it was to be implied that the vendor now has a good right and title to assign the land free from encumbrance. When I pointed out to counsel that the First Schedule of the Conveyancing and Property Ordinance only dealt with assignment, it was contended that the word "assignment" was wide enough defined as to include an agreement. It was also contended that the decision of Sung Wai Kiu v. Wong Mei Yin [1997] 1 HKC 288 supported such contention. Suffice is for me to say that plainly the definition of assignment in the Conveyancing and Property Ordinance could not include an agreement and to the extent that Sung Wai Kiu's case could be said to support the contention that terms set out in the First Schedule of the Conveyancing and Property Ordinance are to be implied into an agreement I am not disposed to follow that decision because I think that it is clearly wrong. I reject this contention.

25. The Plaintiff also contended that since by terms of the building licence, the registered owner could not enter into an agreement to bind himself to dispose of the property to be built without any risk of the Government's re-entry, the Defendant could not have any interest or right in the property to sell to the Plaintiff. Thus this would be a case that there is a fundamental defect in the Defendant's title to the property and the Plaintiff was entitled to rescind the contract even before completion date. In this respect, the Plaintiff relied on A Mayson Development Co. Ltd v. Betterfit Ltd [1992] 2 HKC 533.

26. I do not think that the A Mayson Development Co. Ltd's case had any application to the present case. In that case, the court came to a clear view that a defect in the title existed and within the time available before completion, there is no prospect in the vendor's doing anything to remove the defects. In the present case, it is at least a triable issue as to whether within the time available before completion, the vendor is able to make any arrangement with the registered owner to ensure that the registered owner would transfer the legal title to the property to the purchaser on completion.

Proper parties

27. The Defendant also contended that in any case, since Joinrex was the only party to the Formal Undertaking under which the Plaintiff was to acquire the property, in any event I cannot give judgment for the Plaintiff because Joinrex was not made a party to this action. It was also contended that any order for rescission of the contract would necessarily affect Joinrex in 2 ways. First the order prayed for by the Plaintiff included a declaration that the Formal Undertaking was rescinded. Secondly, Joinrex plainly had acquired some rights in the sale and purchase agreements between the Plaintiff and the Defendant, which would be affected if the agreements were rescinded.

28. To answer that point, the Plaintiff asked for leave to amend the prayer in the summons so that the declaration of rescission would not include the Formal Undertaking. The Plaintiff further contended that Joinrex was in fact only the agent or alter ego of the Defendant.

29. I must say that the exact relationship between Joinrex and the Defendant is not clear from the evidence before me. In paragraph 4 of the Defendant's affirmation, she seemed to identify Joinrex and herself as the same entity. However from the fact that the Plaintiff was willing to pay an extra $100,000 for entering into the Formal Undertaking it would appeared that the parties did not consider that Joinrex and the Defendant must be the same entity or the alter ego of one another. This is a point which required further investigation in the trial.

30. For the reasons discussed above, I consider that there are clear triable issues in this case, I do not have to consider whether this action is properly constituted without Joinrex being joined as a party. I would decline leave to amend the prayer in the summons as such amendment is useless.

Conclusion

31. I am not satisfied that there is no triable issue in this case. In fact from the material available to me, I am of the view that the Defendant has shown a very strong defence to the Plaintiff's claim. The Defence was filed well before the Plaintiff's summons for summary judgment, and I consider that the Plaintiff should be well aware of the Defendant's case in answer to the Plaintiff's claim. Accordingly I consider that the right order to make is to dismiss the Plaintiff's summons with cost.