Chow Danny Hok Yin Francis and Another v. Canton Century Ltd

DCCJ 3972/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3972 OF 2013

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JUDGMENT
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Introduction

1.This case is about an intended, but ultimately aborted, sale and purchase of a property.

2.Pursuant to a preliminary sale and purchase agreement dated 12 November 2012 (“the Head Agreement”), the defendant purchased a number of properties from a Ford Venture Ltd (“the Head Vendor”) and the completion date was on or before 3 May 2013. The various properties purchased by the defendant included Shop G05, Ground Floor, Lik Sang Plaza of Foo Yu Building ("the Building”), 263/267 & 271/275 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong (“Shop G05”).

3.The plaintiffs are husband and wife. Pursuant to a written Chinese preliminary sale and purchase agreement dated 8 January 2013 (“the PSPA”), the plaintiffs as purchasers agreed to purchase shop G05C of the Building (“the Property”) from the defendant. Completion date was on or before 3 May 2013 and the time was by noon on that day.

4.The plaintiffs paid an initial deposit of $160,000 and a further deposit of $160,000 to the defendant pursuant to the PSPA.

5.In this transaction, Messrs Fan & Co (“FC”), solicitors firm for the plaintiffs, raised requisitions about the title of the Property. Messrs Wong & Co (“WC”), solicitors firm for the defendant, answered those requisitions raised. At the end, no sale and purchase agreement was signed. On 3 May 2013, the parties did not complete.

6.The plaintiffs’ case is that the defendant had failed to answer the requisitions raised and therefore failed to prove good title to the Property. Now, the plaintiffs asked for the return of deposits paid and also for damages. The defendant’s case is that it had answered the requisitions and now seeks to forfeit the deposits.

Issue of trial

7.There is basically no factual dispute in this case. The main issue is whether or not the defendant has proved a good title.

8.According to the pleaded case, the plaintiffs say that the defendant has failed to answered 3 groups of requisitions :-

(1)Failed to produce certified copies of some title documents;

(2)Failed to provide the deed poll and sub-sub DMC as mentioned in clause 8 of the PSPA; and

(3)Failed to answer questions relating to the existing tenancy of the Property.

9.Ms Ng, counsel for the plaintiffs, confirmed that she will not rely on the 1^st and 3^rd groups of requisitions in this case. She concentrated her submission on the 2^nd group of requisitions.

10.If I find that the defendant failed to answer the 2^nd group of requisitions, the next issue is the amount of damages. Another question is that who is going to pay commission to the estate agent.

Discussion

11.It is trite law that a vendor has a duty to prove good title. It is not in dispute that the defendant did not provide a signed deed poll or a signed sub-sub DMC to the plaintiffs prior to the scheduled completion date.

12.In this case, the reason for having a deed poll and a sub-sub DMC is obvious. At the time when the PSPA was entered into, only Shop G05 existed. The defendant intended to divide Shop G05 into 3 units, ie, A, B and C. The plaintiffs were intending to purchase the Property, ie, only unit C divided from Shop G05. Therefore, a deed poll and a sub-sub DMC were needed for the plaintiffs to know the exact location of the Property (usually by reference to a coloured plan) and how many undivided shares were ultimately allotted to them. Further, without a deed poll and a sub-sub DMC, no valid shop G05C could be in existence at all.

13.Clause 8 of the PSPA stipulates that the purchaser was required to sign with the vendor a deed poll and sub-sub DMC (or to accept a signed deed poll and sub-sub DMC) at the time of completion.

14.There is no dispute that plaintiffs were not asked to sign any deed poll and/or sub-sub DMC. By letter dated 22 April 2013 by WC to FC, the plaintiffs were only given a draft deed poll and sub-sub DMC for perusal. However, the identity of the first owner was wrongly named as Billion Harvest International Limited, which was subsequently admitted by WC as a “typo”. The identity of the other party to the draft sub-sub DMC was left blank and therefore unknown.

15.WC’s reply to FC in this regard was by a letter dated 30 April 2013 as follows:-

“6. When Completion has [not] been done, the Head Vendor will not execute the sub-sub DMC or Deed Poll. How can our client register the said Deeds before Completion? Our client can only register the said Deeds after the Head Vendor, receives the final consideration and executes the said Deeds. We cannot entertain your requisition.

……

8. (a) Our client acquired the Shops G05, G06 and G07 on 12 November 2012. From that day, our client sub-divided the said Shops into G05A, G05B, G05C, G06A, G06B, G07A, G07B, Shop 07C and G07D which the consent from the Head Vendor. However, there is no physical sub-division until the expiry of the existing Tenancy.” (my emphasis)

16.The allegation that sub-division of Shop G05 into 3 units was done on 12 November 2012 must be wrong. At that point of time, the defendant had only entered into a provisional sale and purchase agreement with the Head Vendor. The scheduled completion date was on or before 3 May 2013.

17.At the end, neither signed deed poll nor signed sub-sub DMC had been given to the plaintiffs prior to completion at 12:00 noon on 3 May 2013.

18.Mr Ng, counsel for the defendant, submitted 2 lines of answer in this case. He firstly pointed out that DMC is not a title document and its absence would not affect title. He further submitted that in any event by reason of clause 8 of the PSPA, the plaintiffs had effectively waived to raise any requisition for deed poll and sub-sub DMC.

Is DMC or Deed Poll a title document?

19.In support of his submission that DMC is not a title document, Mr Ng cited the case of Goodtex Land Co Ltd v Lung Kwong Emporium Co Ltd [1993] 1 HKC 645. That case was commenced by a vendor and purchaser summons. The property involved in that case had no DMC and Godfrey J decided that there was no question of a defect in title.

20.In reply, Ms Ng submitted that Goodtex should be confined to its own facts. Ms Ng cited Silver Pioneer International Limited v Good Onwards Company Limited, HCMP 4807/2003 (unreported, 27 September 2004) in which Deputy High Court Judge To (as he then was) said :-

“15. In respect of the clauses ensuring exclusive possession, [Counsel for the defendant] argues on the authority of Goodtex Land Co Ltd that no problem of exclusive possession would arise even if the Sub-DMC was never executed because the assignment of the Property itself provides for exclusive possession of the Property and that such right could as a matter of commercial necessity be implied under the principle in Goodtex Land Co Ltd. With respect, I do not agree. The facts in Goodtex Land Co Ltd is peculiar in that the property in question was a six-storey building which composed of a small number of units. On such peculiar facts and thirty years quiet enjoyment, the reservation could be readily implied. In Polyson Jewellery Co Ltd & Anor, there were more than eighty different flats in the building concerned. Hang Shun Building in the present case is a modern high rise building composed of many more units. Such covenant as regards exclusive possession could not be readily implied in the present case.

16. It should also be noted that what Godfrey J did in Goodtex Land Co Ltd was to imply into the conveyances on sale a reservation of the right to exclusive possession, which is an item usually to be found in a deed of mutual covenant. I do not think the case established any principle of law that in the absence of a deed of mutual covenant, the court will necessarily imply such a right of exclusive possession binding on all the owners. Even if such a right could be implied, the Defendant never relied on that in their answer to the purchaser's requisition. What the court has to consider in this case is not whether the vendor had a good title but whether he has sufficiently answered the purchaser's requisition and showed a good title: see Kok Chong Ho v Double Value Developments CA 96/1991 (unreported).

17. As a matter of precedent, Goodtex Land Co Ltd was a decision of the High Court, while Polyson Jewellery Co Ltd & Anor was a decision of the Court of Appeal which is binding on me.  I do not think the defendant's lack of legal representation material as it was the decision of a very strong Court of Appeal comprising of Rogers VP, Le Pichon and Cheung JJA and the relevant authorities have been referred to.  The proposition of law is a very simple one, namely that a document by which individual owners of undivided shares in a property could claim the right to exclusive possession of their respective units in the property is a document which affects title.”

21.In Polyson Jewellery Company Limited & anor v Liu Song Carlos [2002] 2 HKC 183, Rogers VP said at 188H :-

“In relation to the DMC being a contractual document and not one that affected title the judge, again, in my view, correctly rejected that. Clearly the DMC does affect title. It is the document by which the individual owners can claim the right of exclusive possession.”

22.I agree with Ms Ng’s submission that the facts in Goodtex are peculiar and confined to its own fact. A DMC is a necessary document of title: Polyson Jewellery Co Ltd.  So is a sub-deed of mutual covenant, if this is what sets out the rights and obligations of the vendor while providing for his right to exclusive possession: Silver Pioneer International Ltd.

23.In the present case, it is obvious that the plaintiffs and defendant had contracted under clause 8 of the PSPA that either a signed deed poll and a sub-sub DMC would be provided, or those documents would be entered between the plaintiffs and the defendant, before completion. From the correspondences between FC and WC, only a draft sub-sub DMC with an incorrect name of the first owner had been given to the plaintiffs for perusal. The fact is that prior to completion, there was no signed deed poll or a sub-sub DMC.

24.Probably, because the scheduled completion time of the PSPA was earlier than the scheduled completion time of the Head Agreement, the defendant was difficult to obtain a signed deed poll and/or a sub-sub DMC. However, I accept the submission by Ms Ng that the defendant did so at its own peril. I find that in the circumstance the defendant has failed to show a good title to the Property in failing to provide the plaintiffs a signed sub-sub DMC or a signed deed poll, both are title documents in the present case.

Waiver

25.The 2^nd answer submitted by Mr Ng is about waiver. Clause 8 of the PSPA is written in Chinese, as follows:-

“買方需於完成買賣時與賣方簽訂或接受已簽訂的Deed Poll及Sub-Sub-Deed of Mutual Covenant。買方現聲明及同意接受所有有關該舗位的上手公契及分公契(當中包括但不限於Deed of Mutual Covenant, Sub-Deed of Mutual Covenant及Deed of Grant of Rights (if any)) (涵稱“該公契”)。(有關之Sub-Sub-Deed of Mutual Covenant需以賣方律師之指定版本為準, 買方不可要求任何修改)。賣方有權決定該舗位之業權份數及管理份數, 及於交易完成前將之調整。買方不可就此要求解除本合約或要求賣方作出任何賠償, 唯賣方對業權份數及管理份數之調整權將不可在影響買家享用該舗位之情況下行使。”

26.In a gist, the defendant, namely the vendor, have the right to decide the undivided shares and management shares of the Property and can adjust those shares prior to completion. The plaintiffs, namely the purchaser, cannot, because of it (就此), ask for rescission of the contract or demand for compensation from the vendor. But the adjustment of those shares cannot affect the right of the purchaser to enjoy the right to use the Property.

27.Mr Ng’s view is that clause 8 is a wavier that even in the absence of any deed poll and sub-sub DMC, the plaintiffs cannot rescind the contract or ask for damages. In other words, the words “就此” refers to the absence of deed poll and sub-sub DMC.

28.Ms Ng’s view is that clause 8 is a wavier that the plaintiffs cannot rescind the contract or ask for damages through challenging the number of undivided shares allotted to the plaintiffs under the deed poll and sub-sub DMC. In other words, the words “就此” refers to the allotment of the number of undivided shares.

29.It is in fact a question about interpretation of the PSPA. Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society and anor [1998] 1 WLR 896 said at p 912 – p 913:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A. B. [1985] A.C. 191, 201:

‘ if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’  ”

30.In Jumbo King Ltd v Faithful Properties Ltd & others (1999) 2 HKFCAR 279 Lord Hoffman NPJ said at page 296 :-

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve…”

31.In Leung Ka Lau v Hospital Authority (2009) 12 HKCFAR 924 Ribeiro PJ said at paragraph 37 :-

“The parties also accept (in my view correctly) that construction of those documents should be approached applying the well-known principles stated in Jumbo King Ltd v Faithful Properties Ltd, where Lord Hoffmann NPJ described the process as “an attempt to discover what a reasonable person would have understood the parties to mean” which involves “having regard, not merely to the individual words [the parties] have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve”. Furthermore, as his Lordship stated in Investors Compensation Scheme Ltd and West Bromwich Building Society, the interpretation of a document involves “ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”

32.I bear all these principles in mind to interpret clause 8 of the PSPA.

33.The factual matrix leading to the requirement for a signed deed poll and a signed sub-sub DMC is obvious and indisputable. At the time when the PSPA was entered into, only Shop G05 existed. Apparently, the defendant intended to divide the shops purchased from the Head Vendor into a number of smaller shops. Shop G05 was intended to be divided into 3 units, ie, A, B and C. The plaintiffs were intending to purchase only shop C. Therefore, a deed poll and a sub-sub DMC were necessary for the plaintiffs to know how many undivided shares were ultimately allotted to them. In the absence of a deed poll and a sub-sub DMC, there will be no shop G05C (ie, the Property), but only Shop G05.

34.At the time when the PSPA was entered into, it was yet to be known the exact undivided shares and management shares to be allotted to the Property. It is therefore obvious that clause 8 was drafted to avoid any dispute as to how many undivided shares were to be allotted to the Property.

35.Further, the whole context of the PSPA must be considered in endeavouring to interpret it. Clause 8 firstly stipulated that the purchaser is required to sign the deed poll and sub-sub DMC. Then, it mentioned that the vendor can decide the number of undivided shares and management shares allotted to the Property. Afterwards, it stated that the vendor cannot because of it (“就此”) to rescind the contract or ask for damages. Immediately after that, it stated that the allotment of shares should not affect the purchaser in enjoying the shop.  Therefore, from the context of clause 8, it was dealing with the number of shares to be allotted. So, the words “就此” should also be talking about the number of shares to be allotted but not the absence of the deed poll and sub-sub DMC.

36.Clause 8 is clear and without any ambiguity. I agree with the submission by Ms Ng and find that clause 8 of the PSPA is a wavier that the plaintiffs cannot rescind the contract or ask for damages through challenging the number of undivided shares to be allotted to the plaintiffs under the deed poll and the sub-sub DMC.

37.In addition, in case that both interpretations as submitted by Mr Ng and Ms Ng are possible (which I disagree), I think that the contract should be construed more strongly against the maker in case of any doubt or ambiguity.  Chitty On Contracts (31^st ed) quoted what Evershed MR said:-

“We are presented with two alternative readings of this document and the reading which one should adopt is to be determined, among other things, by a consideration of the fact that the defendants put forward the documents. They have put forward a clause which is by no means free from obscurity and have contended … that it has a remarkably, if not an extravagantly, wide scope, and I think that the rule contra proferentem should be applied.” (§12-083)

38.If my interpretation of clause 8 were wrong, I shall apply the contra proferentem rule.  In this case, the defendant was the drafter.  The interpretation of the contract should be in favour of the plaintiffs.  

39.So, I find that the plaintiffs never “waive” their right for signing and/or having a signed deed poll and/or sub-sub DMC. The plaintiffs merely waive their right for challenging how many undivided shares are to be allotted.

40.In the circumstance, I find that the defendant has failed to answer the 2^nd group of requisitions and thereby failed to prove good title.

Bad bargain?

41.The defendant also suggests that the plaintiffs refuse to complete because they wished to get out of a bad bargain. Although it is indisputable that after the intended sale and purchase between the plaintiffs and defendant had fallen through, the defendant was only able to sell the Property at $3 million, ie, $200,000 lesser than the price under the PSPA, I think it is insufficient to draw an inference that the plaintiffs wished to get out of a bad bargain. Taking all evidence into account, I do not think that the reason for the plaintiffs to refuse to complete was because they found the bargain was “bad”. They refused to complete because the defendant failed to prove a good title.

Damages

42.Both parties agree that in case I find that the defendant has failed to answer the requisition, the deposits paid should be returned. So, I order the defendant to pay $320,000 to the plaintiffs.

43.What parties cannot agree is that whether or not the defendant should be liable for an additional sum under clause 17.

44.Clause 17 is as follows:-

“如賣方拒絕簽署正式買賣合約, 則賣方需立刻向買方發還所有買方按本合約已繳付之訂金, 並加付相等於臨時訂金之金額以作為補償買方之損失, 惟買方不可向賣方追究因賣方之缺失而導致的損失或要求強制執行本合約。”

45.In gist, clause 17 provides that if the vendor refuse to sign the formal sale and purchase agreement, the vendor is required to repay all the deposits paid under the contract and to pay an equivalent sum of the provisional deposit to the purchaser as damages. The purchaser cannot claim against the vendor for damages incurred or ask for specific performance.

46.The pre-condition in triggering clause 17 is that the defendant refuses to sign a sale and purchase agreement. The relevant chronology of events is as follows:-

(1)By letter dated 18 January 2013 from WC to FC, a draft agreement for sub-sale and purchase and the Head Agreement were enclosed.

(2)By letter dated 21 January 2013 from FC to WC, FC queried that several clauses in the PSPA have not been incorporated into the said draft agreement for sub-sale and purchase.

(3)By letter dated 4 February 2013 from FC to WC, FC stated that they have not yet received any fresh draft agreement for sale and purchase.

(4)By letter dated 25 March 2013 from FC to WC, FC asked for the formal agreement for sale and purchase.

(5)Subsequent correspondences exchanged between FC and WC were about the requisitions. WC did not reply to the letter dated 25 March 2013 in relation to the formal agreement for sale and purchase.

47.Taking all correspondences into account, I find that WC did not give a copy of the formal agreement for sale and purchase to FC before completion. In the circumstance, I find that it was the defendant who failed to sign a formal sale and purchase agreement and was in breach of clause 17 of the PSPA.

48.Therefore, apart from the deposits, the defendant is liable to pay the plaintiffs a sum equal to the “initial deposit paid” and that should be $160,000.

Legal costs?

49.As there is no evidence before me that the plaintiffs incurred any legal costs, be it $7,000 or any other sum, Ms Ng conceded that the plaintiffs have difficulty in proving damages under this heading. I do not find any evidence to substantiate that the plaintiffs have incurred any legal costs or disbursement in this aborted purchase of the Property.

Declaration sought by the plaintiffs

50.The plaintiffs sought a declaration that the plaintiffs are entitled to a lien on the defendant’s interest in the property for the return of the deposits and for the loss and damage, interest and costs. As the defendant had already paid security money of $640,000 into court and such sums exceed the total award (excluding costs) to the plaintiffs, I do not intend to make any declaration.

Declaration sought by the defendant

51.The defendant asked me to make a declaration that the plaintiffs are liable to pay the commission to the estate agent or alternatively, to indemnify the defendant against any claim in respect of the commission. In view of my decision, no declaration will be made.

Conclusion

52.In the circumstance, judgment be entered for the plaintiffs against the defendant for $480,000 with interest at half judgment rate from the date of writ until the date of judgment and thereafter at judgment rate until satisfaction. As the defendant had already paid $640,000 into court as security, I order that the said judgment sum (with interest) are to be paid out from the said security to the plaintiff and the remaining balance, if any, are to be returned to the defendant.

53.Defendant’s counterclaim be dismissed.

Costs

54.Costs should follow event. Mr Ng submitted that even if the plaintiffs succeed, 1/3 of the costs should be reduced because the opening submission by Ms Ng showed that the plaintiff was only pursuing this case upon the 2^nd and 3^rd groups of requisitions. In fact, during final submission, Ms Ng did not pursue the case upon the 3^rd group of requisitions as well.

55.In this case, there was no factual dispute. From the opening submission and final submission prepared by Mr Ng and Ms Ng, it is apparent that the most controversial dispute between the parties must be the 2^nd group of requisitions. Minimal, if not zero, court time had been spent on the argument over the 1^st and 3^rd group of requisitions. Taking all the circumstance into consideration, I do not consider it appropriate to cut the costs of the plaintiff in that situation. I decide that, on nisi basis, the defendant do pay the costs of this action to the plaintiffs (include any costs reserved), to be taxed if not agreed with certificate for counsel. This order nisi on costs shall become absolute in the absence of application to vary within 14 days hereof.

Miss Queenie Ng, instructed by Fan & Co for the 1^st and 2^nd plaintiffs

Mr Ernest Ng, instructed by Wong & Co for the defendant