Recall International Ltd v. Panten Ltd
Read the full judgment text of HCA 1896/2012 on BabelCite. This High Court CFI judgment was delivered on 23 January 2017.
1. This is a dispute concerning a property known as Workshop A, 7 th floor, Morlite Building, 40 Hung To Road, Kowloon, Hong Kong (“ the Property ”). I shall call Morlite Building “the Building” herein.
Cites 14 cases
|
HCA 1896/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1896 of 2012 __________________
__________________
__________________ D E C I S I O N __________________ A. INTRODUCTION 1.This is a dispute concerning a property known as Workshop A, 7th floor, Morlite Building, 40 Hung To Road, Kowloon, Hong Kong (“the Property”). I shall call Morlite Building “the Building” herein. 2.In 2012, there was a series of sales and purchases of the Property:
The latter two were “confirmor” sales. 3.Of course, in strict legal terms, the subject of the sales and purchases is certain undivided shares in the Building, with the owner of those shares subject to and having the benefit of the rights and obligations contained in the Deed of Mutual Covenants of the Building dated 31 December 1977 (“the DMC”). One of those rights is the right to occupy the Property exclusively. A co‑owner of the Building would also have, and the purchaser would therefore be also purchasing (in the words of the Second Schedule to the DMC):
4.Under the provisional sale and purchase agreement between the defendant (as the vendor) and the plaintiff (as the purchaser) (“the Agreement”):
5.A total of HK$1,300,000 was paid by the plaintiff to the defendant as deposit. 6.Title deeds were provided, and requisitions were raised and answered, between solicitors acting for the defendant and the plaintiff (“SHC” and “TYTW” respectively). No issue arises thereon. B. THE REQUISITION 7.On 12 September 2012, Wealth Treasure Corporation Limited (“WT”), a co‑owner in the Building, commenced an action in the Court of First Instance (HCA 1658/2012) (“the 1658 Action”) against the other co‑owners (including the Head Vendor as the 7th defendant) and “Persons entering or remaining at the plaintiff’s property without the consent of the plaintiff and other persons trespassing on the said property and preventing the plaintiff from reinstating the external wall” as the 9th defendant. The Incorporated Owners of the Building (“the IO”) was not named as a defendant. 8.In the Statement of Claim specially endorsed on the writ in the 1658 Action, WT alleged that:
9.WT therefore asked for an injunction restraining the defendants (and their agents etc) from entering remaining or trespassing on its property at the Building. 10.On 3 October 2012, i.e. after the period for the raising of requisitions or objections provided for under the Agreement had expired, and two days before the completion date, TYTW sent a letter to SHC as follows:
It seems clear that TYTW’s description of the 1658 Action was not wholly accurate, as the IO was not involved in that action. 11.On the same date, TYTW received a letter from solicitors acting for the Sub‑Sub‑Purchaser (“TKC”) as follows:
12.It is not very clear to me what was the sequence of the two letters of 3 October 2012 referred to in §§10 and 11 above. The letter from TYTW did not say that it was told of the 1658 Action by TKC, but by its client. Further, although the letter from TKC enclosed the Writ, the letter from TYTW did not. Also, if TYTW had received the letter from TKC when it sent out its letter to SHC, it would have a copy of the Writ which would have informed TYTW that the IO was not a party, but its letter suggested that it was. These matters suggest to me that the letter from TYTW might have been sent out before it received the letter from TKC. In its Statement of Claim herein, the plaintiff appears to suggest that the letter from TKC came first. However, nothing turns on this. 13.On 4 October 2012, the following day, TYTW sent another letter to SHC as follows:
14.SHC replied by fax at 7:32 pm on the same date as follows:
15.The copy of the letter from the solicitors of the Head Vendor (“CL”) to SHC enclosed by the latter’s letter was also dated 4 October 2012 and stated as follows:
16.TYTW replied to SHC on the same date as follows:
17.On the following day, 5 October 2012, at 10:24 am, SHC sent to TYTW copies of three letters from CL to SHC “for your reference, the contents of which are self‑explanatory”. 18.The first letter from CL was dated 4 October 2012 and stated as follows:
19.The second letter from CL is not relevant to present purposes. The third letter from CL is in fact the same as the one copy of which SHC had sent to TYTW on 4 October 2012 (§15 above). 20.TYTW replied to SHC on 5 October 2012 as follows:
21.At 12:11 pm on 5 October 2012, SH faxed a letter to TYTW in the following terms:
22.The letter from CL a copy of which was so enclosed, and dated 5 October 2012, stated as follows:
23.At 12:41 pm on 5 October 2012, SHC faxed another letter to TYTW, enclosing a copy of another letter from CL “for your reference, the contents of which are self‑explanatory”. The letter from CL, also dated 5 October 2012, was as follows:
24.TYTW then wrote to SHC on 5 October 2012 as follows:
25.At 3:34 pm on the same date, SHC replied to TYTW as follows:
26.TYTW replied on the same date to SHC as follows:
27.Completion of the sale and purchase of the Property did not take place between the plaintiff and the defendant on 5 October 2012. 28.On 8 October 2012, SHC sent the following to TYTW:
29.On 12 October 2012, the plaintiff commenced the present action, and, by Summons dated 22 June 2016 (“the Summons”), the plaintiff applies for summary judgment under Order 86 for specific performance of the Agreement. This is the hearing of the Summons. C. DISCUSSION 30.Mr Warren Chan SC, appearing for the plaintiff with Mr Liu Man Kin, submits that two possible title defects relating to the Subject Entrance were raised by way of requisition, by reference to the Statement of Claim in the 1658 Action:
31.Mr Jonathan Chang, appearing for the defendant together with Ms Cherry Xu, takes five points against the plaintiff[1]:
32.I shall deal with each point in turn. C1a The Common Area Issue 33.Since a purchaser of undivided shares of a building is buying not just the right to exclusive possession of his own unit, but also the right (in common with the other co‑owners) to enjoy the common parts (such as the rights mentioned in the Second Schedule to the DMC here), in my judgment the true extent of the common area of the building is a matter that goes to title, as that affects the nature and extent of what the purchaser is buying, and a requisition on exactly what the purchaser is buying, and what the vendor is able to convey, is a proper requisition on title. If by the sale and purchase agreement, the purchaser is buying the right to the exclusive possession of area A, as well as the right to use area B as a common area, and a question properly arises as to whether the vendor is able to convey those rights, for example, that the area to which the right to exclusive possession is attached may in fact be smaller than area A, or that area B may in fact not be a common area, then a proper requisition may be asked, and the requisition goes to title. If indeed the right to exclusive possession is for an area smaller than area A, and that part of area A is in fact a common area, then the vendor will be unable to convey a good title as bargained for, i.e. the exclusive right to occupy area A, and cannot show a good title if requisitions relating thereto are not answered properly (which it cannot): see for example Green Park Properties Ltd v Dorku Ltd (2001) 4 HKCFAR 448. The position is a fortiori, in my judgment, where the subject matter of the sale includes a right to use area B as a common area but it in fact is subject to the right of exclusive possession of another person. 34.Mr Chang seeks to draw a distinction between the case where the common areas are defined by the relevant deed of mutual covenants by for example a plan attached thereto, and those that are not, if a co‑owner comes out and claims that part of what has been considered a common area is in fact not. In the former case, he says, the co‑owner would be seeking to take away a part expressly identified as common area, and in the latter case, since the common area is not expressly defined, the co‑owner’s action serves only to identify what is, and what is not, common area which is left undefined by the deed of mutual covenants. The purchaser is always buying only the right to use whatever is in fact the common area of the building, and the co‑owner’s action is not going to take anything away. In the former case, it is a question of title, and in the latter case, it is not. 35.I think this argument in fact is an acceptance that the question of the extent of the common area, the right to use of which the purchaser is buying, is indeed a matter that goes to title. But in each case the question is what is the extent of the common area the right to the use of which the vendor has agreed to convey, and whether the vendor can show that he can in fact do so. The difference between the two cases referred to by Mr Chang is that in the former case it is most likely that the common area the right to the use of which the vendor has agreed to convey is that expressly defined, and in the latter the common area, since it is not expressly defined in the deed of mutual covenants, would likely to be “whatever it is under the deed of mutual covenants”. But it is always, in a given case, a question of what is the common area on a proper construction of the sale and purchase agreement the right to use which is the subject matter of the sale and purchase, and whether the vendor has shown that he is able to convey such a right. And, in construing the agreement, which is of course an objective exercise, the factual matrix known to both parties is to be taken into account. If, on a proper construction of the agreement, even in the latter kind of cases Mr Chang refers to, the vendor has agreed to convey the right to use a certain part of the building as common area but a legitimate doubt then arises whether he can do so, because a claim is made by someone to that area as his exclusively to possess and enjoy, then a proper requisition may be asked, that being a requisition on title. Subject to the question of whether it is too late for the purchaser to raise the requisition, which I deal with in section C2 below, the vendor is obliged to answer it. 36.The relevant factual matrix, which is not in dispute, and to which Mr Chang in fact prays in aid, is that the Subject Entrance had been used as a common area for over 30 years. In the circumstances, it is clear to me that the Subject Entrance must, objectively, be part of the common area a right to use of which was intended to be conveyed by the defendant to the plaintiff under the Agreement. As the Statement of Claim in the 1658 Action claimed a right to exclusive possession of the Subject Entrance, the requisition raised by TYTW as set out above, in particular as elaborated in the letter dated 5 October 2012 (§24 above), is in my judgment a proper requisition as to title. 37.The fact that the 1658 Action claimed only a personal remedy (i.e. an injunction) against the defendants there (being the co‑owners) is in my judgment neither here nor there. It must be the substance of the claim which matters, and in substance a co‑owner was claiming a right to the possession of the Subject Entrance to the exclusion of all other co‑owners, including the Head Vendor, which WT must make good in order to succeed, thereby affecting the title of the matter to be conveyed to the plaintiff. 38.I note that in or about November 2013, WT discontinued the 1658 Action.[2] Thus, it may be suggested that WT had abandoned its claim to exclusive possession of the Subject Entrance. But this is not relevant as the question of whether the requisition was properly raised by the plaintiff and whether it was sufficiently answered by the defendant must be judged at the time of the question and answer: Polyson Jewellery Co Ltd v Liu Song Carlos [2002] 2 HKC 183 at §34 per Rogers VP. C1b. The Illegality Issue 39.As to the question of illegality, Mr Chang argues that the letters from TYTW did not mention the question of illegality and so no requisition thereon was properly raised at all. 40.I agree with Mr Chang. 41.The illegality point was never expressly raised or mentioned in the letters from TYTW. Even though the Statement of Claim in the 1658 Action had been enclosed and referred to, in its letters TYTW referred to “such claim by [WT]” (letter of 4 October 2012: §13 above; my emphasis), and to the fact that the 1658 Action itself being the incumbrance (letter of 4 October 2012: §16 above), which must mean the claim by WT itself in the Statement of Claim, and the elaboration in the letter of 5 October 2012 (§24 above) only referred to the right to use Subject Entrance as an owner. Those letters did not raise any possible claim by the Government against WT(and possibly other co-owners) by reason of the alleged illegality. On a reasonable reading of those letters, in my judgment the question of illegality had not been raised. 42.In the premises, there is no need for me to deal with the further point raised by Mr Chang that any risk of enforcement action by the Government was fanciful because the Subject Entrance had been there for more than 30 years. The point is that the defendant did not deal with it, as it did not have to. 43.Mr Chang accepts, quite rightly in my view, that if the requisition on the Common Area Issue related to title, it had not been answered properly. Thus, subject to the point on whether the requisition was raised too late, the defendant had failed to show good title by the completion date, was itself in breach of the Agreement, and was not entitled to terminate it on 8 October 2012. C2. Requisition too late? 44.Mr Chang submits that the requisition on the Common Area Issue was only raised after the period allowed under the Agreement. He argues that a late requisition can only be raised if (i) it goes to “the root of title” and (ii) it is not discoverable within time with reasonable diligence. This is of course correct as a matter of law: Lucky Dragon Corp Ltd v Speedy Vantage Ltd [2009] 5 HKLRD 501 at §20 per Le Pichon JA. Since the 1658 Action was only commenced after the period allowed had expired, he accepts that the second condition was satisfied. So that leaves only the first condition. 45.Mr Chang submits that the first condition was not satisfied since the requisition on the Common Area Issue did not go to title at all. 46.In the current looseleaf edition of Emmet and Farrand on Title at §5.064, it is stated:
47.This passage in an earlier (19th) edition of that work was cited with approval by Deputy High Court Judge Cruden in Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297 at 310I‑311D. I respectfully agree. 48.For the reasons I gave at section C1a above, it is clear that the requisition on the Common Area Issue went to the root of the title, and the plaintiff was entitled to raise it out of time. Indeed, Mr Chang accepts that this ground stands or falls together with the first ground, and I reject both. 49.It is not necessary, in the light of the above, to deal with the other point raised by Mr Chan SC on the time limit issue, namely that the defendant had, by SHC’s answering the requisition, waived the time limit. C3. Reasonable time to consider answer 50.Mr Chan SC, referring to Guo Jianjun v Dragon Fame Investment Ltd (CACV 131/2014, 23 September 2015)[3], submits that a purchaser is entitled to a reasonable time before completion to consider any answers given by a vendor. He suggests seven days as the reasonable time, referring to Smart Max Enterprise Ltd v Speedy Way Ltd [2011] 3 HKLRD 675, Yeung Sau Chuen Sammy v Chung Chun Ting [1997] 4 HKC 34 and Join Winner Investment Ltd v Po Wai Ching (HCA 10169/1997, 15 April 1999). Since the answers were only provided by SHC to TYTW on 4 and 5 October 2012, it is argued that the defendant was not entitled to demand completion by the plaintiff by 4:30 pm on 5 October 2012. 51.However, in my judgment, the short answer is that, whether the plaintiff was entitled to more time to consider the answers or not, the fact is that TYTW did consider and reject the answers by its letters sent before the deadline for completion: see the letters I quoted at §§16, 24 and 26 above. While the letter dated 5 October 2012 from TYTW which I quoted at §20 above did refer to the right to have more time to consider the answer, in subsequent letters TYTW did give a definite rejection of the answers, showing that it was able to, and did, come to a view to the answers by then. In the premises, there is no question of the plaintiff still being entitled to more time to come to a view of the answers by the time of the completion: they already did. 52.I do not agree with Mr Chan SC that because the letters contained an express reservation of rights by TYTW, it had thereby reserved more time to consider. Rather, it had unequivocally stated that it had considered and concluded that the answers were not good enough. 53.So, the position was “crystallised” by 4:30 pm on 5 October 2012, and the plaintiff was not entitled to more time to consider the answers. Either TYTW was right, in which case the defendant would be in breach (by failing to show good title), or it was wrong, in which case the plaintiff would be in breach (by failing to complete). For reasons stated above, TYTW was right. C4. Ready, willing and able to complete 54.The principles regarding the readiness, willingness and ability of a party seeking a decree of specific performance of a contract were stated by Lord Millett NPJ in Lau Suk Ching Peggy v Ma Hing Lam (2010) 13 HKCFAR 226 as follows:
55.Thus, the question is whether there is any evidence to suggest that there is any triable issue that the plaintiff in this case was, at the date of the writ, and now is, substantially incapacitated from completing or had determined not to do so at the indeterminate time in the future when a time for completion is fixed: see Lau Suk Ching Peggy v Ma Hing Lam at §56. 56.In my judgment, there is no such evidence. The very fact that the plaintiff commenced this action, and seeking a decree of specific performance, suggests that it was and is ready, willing and able to complete in the sense explained by Lord Millett. The Statement of Claim herein asserts that the plaintiff has been and remains ready, willing and able to complete, and this is confirmed by the affirmation of Ms Hui Yee Kan Erica, a director thereof. There is no reason for me to reject this. 57.I reject this argument by Mr Chang that the plaintiff had not shown that it was ready, willing and able to complete the transaction at the date of the writ, or now. C5. Delay and laches 58.Mr Chang argues that, because of the plaintiff’s delay in the prosecution of this action, it would be unjust that it should now be awarded the decree of specific performance, because:
59.Mere delay is not sufficient to defeat a claim for specific performance. The question is whether the delay renders the grant of the decree practically unjust, or inequitable: Ng Kee v Attorney General [1977] HKLR 587 at 590‑591 per Pickering JA; Spry, The Principles of Equitable Remedies (9th ed, 2014), at 238. 60.Regarding the improvements, repair and maintenance, the evidence from the defendant is that it had spent HK$405,442 on those matters in 2013, HK$258,000 in 2014, and HK$87,060 in 2015, totalling HK$751,402. 61.These expenses were incurred by the defendant at times when this action, and the claim for a decree of specific performance, was, to its knowledge, pending. Unless there was some reasonable basis for the defendant to consider that the action would not be proceeded with by the plaintiff, and on that basis such expenses were incurred, then I do not see how they would be relevant as an unjust factor. 62.Substantial expenses were incurred already in 2013, the year after this action was commenced in late 2012, at a time when there had not been any delay to speak of, and I do not see how, in the absence of any positive acts by the plaintiff to show to the defendant that it would not be proceeding with this action (and there are no such acts alleged), the defendant can reasonably say that it incurred those expenses in the belief or on the basis that this action would not be proceeded with. While the time lapsed had increased by 2014 and 2015, that was in my judgment at least equally, if not more, consistent with a continuing trend of the defendant incurring those expenses for reasons of its own rather than on some such basis arising in those years. 63.Further, as Mr Chan SC points out, there is evidence of a continuing attempt to settle the matter by way of negotiations and mediation from May 2013 to December 2015. This suggests that the defendant could not have thought that the plaintiff was abandoning or giving up the claim, but rather explains the inaction for quite some time, which also answers the defendant’s point that it had unfairly been held in suspense for some time. 64.There is also no evidence that the defendant would want to resell at any time, but that in fact there is evidence (not refuted) that it had managed to mortgage the property in October 2012. 65.The other points raised, such as being kept out of money, etc, are in my judgment points arising from a mere delay without showing anything unjust or inequitable. The defendant is to be compensated by interest on the balance of purchase price payable in any event. 66.I am therefore not satisfied that the defendant had suffered any prejudice, or that it would otherwise be unjust or inequitable to order specific performance, on the ground of delay or laches. D. DISPOSITION 67.I am satisfied that no arguable defence has been shown to the plaintiff’s claim for a decree of specific performance, and I see no reason not to so order. 68.The plaintiff has attached to the Summons draft “Minutes of Judgment” setting out the orders I am asked to make, to which Mr Chang does not have any real comments. I shall make the orders as per the draft “Minutes of Judgment”, save for the following adjustments regarding costs and interest:
I set out the Minutes of Judgment as revised as per above, together with other minor revisions, which I order, in the Annex hereto (subject to any variation of §3 thereof in the event that the defendant does apply successfully for a variation of the costs order nisi that I make above). 69.I thank counsel for their assistance.
Mr Warren Chan SC and Mr Liu Man Kin, instructed by Tse Yuen Ting Wong, for the plaintiff Mr Jonathan Chang and Ms Cherry Xu, instructed by Eddie Lee & Co, for the defendant ANNEX Minutes of Judgment 1. The Provisional Sale and Purchase Agreement dated 23 February 2012 (“the Sub Sale Agreement”) entered into between the plaintiff and the defendant concerning Workshop A, 7th Floor, Morlite Building (豐明大廈), No.40 Hung To Road, Kowloon, Hong Kong (“the Property”) mentioned in the Writ of Summons be specifically performed and carried into execution. 2. The following Accounts be taken:
3. The defendant do pay the plaintiff the costs of this action, including this application with a certificate for two counsel, to be taxed if not agreed. 4. What shall be found due upon the said Account of rents and profits be deducted from the amount of purchase money and interest when so computed and the balance certified. 5. The defendant do execute a conveyance of the Property free from all incumbrances as an escrow to be delivered to the plaintiff. 6. Upon the plaintiff, at a time and place to be agreed, and in default of such agreement to be fixed by the Court, paying to the defendant the balance so certified, the defendant at the same time and place do deliver to the plaintiff:
7. There be liberty to apply. [1] There is a sixth point taken, namely that since there would be a trial on the plaintiff’s claim for misrepresentation pleaded, the court should not truncate the case by giving summary judgment on part of the case now. At the hearing, Mr Chan SC expressly abandons all claims by the plaintiff apart from the decree of specific performance, and so this point falls away. [2] See §2(7) of the judgment of Mr Recorder Pow SC in The Incorporated Owners of Morlite Building v Asia Century Limited and others (HCMP 1801/2014, 9 September 2015). [3] The application for leave to appeal to the Court of Final Appeal was dismissed: see Guo Jianjun v Dragon Fame Investment Ltd (2016) 19 HKCFAR 352. [4] Foran v Wight(1989) 168 CLR 385 at 452 per Dawson J. [5] (1948) 76 CLR 547 at 560. [6] To the same effect is Rawson v Hobbs(1961) 107 CLR 466 per Dixon CJ at 481. [7] (1961) 107 CLR 466 at 481. [8] Quoted with approval by Mason CJ and Brennan and Dawson JJ in Foran v Wight(supra) at 409, 425 and 453-4. | |||||||||||||||||||||||
Cases cited in this judgment