Yeung Kam Kuen and Others v. Liou Je Iang and Another

HCMP 1609/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1609 OF 2011

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J U D G M E N T

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INTRODUCTION

1.The plaintiffs were the purchasers of a residential unit in a multi-storey building in Wan Chai Road, Wan Chai (“the suit property”) (the defendants were the vendors).  The formal sale and purchase agreement was entered into in May 2011 with the following essential terms (among others):

(a) the contract price was $4 million;

(b) completion was scheduled for 22 July 2011.

(“the subject agreement”)  The total amount of deposit paid was $400,000; stamp duty was also paid for the subject agreement.

2.Further to the subject agreement:

(1) by a Chinese memorandum dated 7 May 2011 (“the 7 May memorandum”), the parties agreed:

(a) the completion date of the provisional sale and purchase agreement should be changed from 22 July 2011 to 22 June 2011;

(b) the plaintiffs would unconditionally permit the defendants to continue to use the suit property after completion from 22 to 30 June 2011;

(2) by a letter dated 6 May 2011, the plaintiffs’ solicitors informed the defendants’ solicitors:

“[our respective] clients agreed to bring up the completion date to 22^nd June 2011 … ”.

(3) by a letter dated 9 May 2011, the defendants’ solicitors replied:

“… our client [has] no objection to bring forward the completion to 22^nd June 2011”.

3.Title documents were delivered to the plaintiffs’ solicitors on 19 May 2011.  Further, a search of the Land Registry records showed that lis pendens were registered against the suit property:

(a) on 25 November 2003 (HCA 4324/2003);

(b) on 25 January 2007 (DCCJ 198/2007).

The following were also registered:

(1) a discharge order (DCCJ 198/2007) (on 29 September 2010);

(2) a notice of discontinuance (HCA 4324/2003) (on 7 October 2010).

The plaintiff of the above actions was a Mr Wong (“Mr Wong”).

4.Despite para 3(1) and (2) above, by a letter dated 25 May 2011, Mr Wong’s solicitors informed the plaintiffs:

(a) the defendants had misled the Land Registry, the bank and the plaintiffs into believing that HCA 4324/2003 had been discontinued;

(b) HCA 4324/2003 was still going on;

(c) an action was commenced against both the plaintiffs and the defendants on 23 May 2011 (HCA 861/2011) (the writ was registered (as a lis pendens) against the suit property).

5.Queries were made by the plaintiffs’ solicitors regarding HCA 4324/2003 and HCA 861/2011 on 8, 10 and 17 June 2011.  The defendants responded on 21 June 2011 to the effect:

(1) HCA 861/2011 was unfounded;

(2) HCA 4324/2003 was discontinued by Mr Wong and DCCJ 198/2007 was struck off;

(3) Mr Wong had applied for legal aid.  In view of the resultant stay of proceedings, it was expected that HCA 861/2011 would not be settled before the completion date.

6.After further correspondence, on 23 June 2011 the plaintiffs’ solicitors treated the failure to complete as a failure to act in accordance with the subject agreement.

7.The plaintiffs purchased another residential property in Kornhill, Quarry Bay in July 2011 (for $5.13 million) (“the Kornhill property”).

ISSUES

8.This action seeks the following relief:

(a) it be declared that the requisitions and/or objections to the title of the suit property have not been answered or answered sufficiently or satisfactorily;

(b) it be declared that good title to the suit property has not been shown;

(c) it be declared that the defendants have thereby repudiated the subject agreement.

This action also seeks related relief such as a purchaser’s lien, return of the deposit, expenses paid and damages.

9.The defendants deny the claim, contending that:

(1) the plaintiffs have repudiated the subject agreement by refusing to perform the same prior to the completion date (22 July 2011);

(2) the plaintiffs have accepted the defendants’ title and waived their right to object to the same (or to raise requisitions thereon);

(3) good title to the suit property has been shown;

(4) in the event the defendants should be found not to have shown good title to the suit property, or to have breached the subject agreement, the plaintiffs have not suffered loss or damage.

(a)   Date of completion

10.The relevant documents are undisputed.

11.The dispute concerns whether an agreement has been reached on about 7 May 2011 to change the completion date to 22 June 2011.  In this connection, the defendants rely on the language used in the solicitors’ correspondence (para 2(2) and (3) above); namely, “to bring up” (plaintiffs) and “to bring forward” (defendants) the completion date.  The language used (it is submitted) does not show a variation.

12.But this overlooks the fact that the parties themselves have executed the 7 May memorandum, which used different language (para 2(1) above); the terms thereof were to the effect that:

(a) the defendants would be able to obtain legal title to the suit property earlier;

(b) the defendants would be given in effect a rent-free period between completion date and the end of June 2011.

This clearly shows an intention to vary the terms of the subject agreement concerning completion of the sale and purchase (and the related right to possess the suit property as a result).

13.The defendants have mentioned that the 7 May memorandum was signed by only one of the defendants, without elaborating on its significance.  Assuming in the defendants’ favour that this was mentioned for the purpose of s 5(1)(a), Conveyancing and Property Ordinance (Cap 219) (instruments to be in writing), the letter from the defendants’ solicitors dated 9 May 2011 enables an inference to be drawn that the 7 May memorandum was executed on the defendants’ behalf. 

14.The law permits more than one document to be examined to find out if a sufficient memorandum in writing exists.  The only requirement is whether the documents are sufficiently interconnected.  Hence, it was pointed out in Town Bright Industries Ltd. v Bermuda Trust (Hong Kong) Ltd. and Another, HCMP 3269/1997 (30 April 1998):

“If more than one document is capable of meeting the requirements of Section 5 of our Conveyancing and Property Ordinance, the test must be whether those documents are sufficiently interconnected” (para 45 thereof).

15.In this action, I am satisfied that there is sufficient interconnection between the 7 May memorandum and the letter of 9 May 2011:

(1) both documents concerned the same subject-matter; that is, the sale and purchase of the suit property;

(2) the dates of the documents were proximate in time;

(3) whereas the 7 May memorandum was signed by only one of the principals, shortly later, the letter of 9 May 2011, which echoed the 7 May memorandum, was written and sent by the solicitors (who, in the absence of evidence to the contrary, are presumed to have been properly authorized by their principals).

Accordingly, it is proper to infer the 7 May memorandum was signed by and on behalf of the defendants.

16.The defendants also argue that the 7 May memorandum (and the letter of 9 May 2011) is not admissible evidence by virtue of Part 3A, Stamp Duty Ordinance (Cap 117), because it was not stamped. They have however failed to explain how a mere variation of the completion date of an already stamped instrument is itself liable to stamp duty again.  No statutory provision(s), or judicial authorities, have been cited in support.

17.Accordingly, I conclude that there has been a variation of the completion date of the subject agreement with the effect that it was brought forward to 22 June 2011.

(b)   Were the plaintiffs out of time?

18.The defendants rely on clause 16(1), the subject agreement in support of this argument.  The clause provides:

“Any requisitions or objection in respect of the title of [the suit property] shall be delivered in writing to [the defendants’] solicitors within 7 working days after the date of receipt of the title deeds …”.

19.They argue that the plaintiffs only raised requisitions on title after the 7-day period has expired.  In relation to the claims made by Mr Wong:

(1) the plaintiffs came to know of the claims on 25 May 2011 at the latest;

(2) the plaintiffs did not raise any requisition in their letter dated 26 May 2011, but only did so in their letters dated 8, 10 and 17 June 2011 (para 5 above).

20.(Apart from the June 2011 letters) the plaintiffs wrote to the defendants on 26 May 2011.  Their letter said:

“… we [were] informed by [notice] from [Mr Wong’s solicitors] letter dated 25^th May 2011 … that [the suit property] is under Charging Order of the Court”.

Later, on 8 June 2011, the plaintiffs’ solicitors wrote:

“Further to our letter dated 26 May which we have NOT received your reply, [the plaintiffs] are extremely disturbed by the fact that they have been joined as Defendants to [HCA 861/2011] … ”.

The earlier letter clearly shows a concern raised by the statements in the letter from Mr Wong’s solicitors (in that a third party has been able to impose a charge against the suit property).  The latter letter expressly sought a reply from the defendants regarding the concern.

21.The language used by the above two letters leaves some room for improvement and could have been expressed better.  But that aside, when read fairly (whether on their own or together), none of the above two letters can properly be:

(a) disregarded (which the defendants’ written submissions have apparently done so (see para 3(b)(ii) thereof);

(b) regarded as mere “updated information” (para 3(b)(ii) and verbal submissions),

for the purpose of determining whether the requisitions were raised “out of time” (it is in any event not immediately apparent why a purchaser should provide “updated information” (except perhaps as regards his payment obligation)).

22.Further, the claims of Mr Wong have created a doubt as to whether third party’s interests in the suit property were involved.  As such, it may be more appropriate to conclude clause 24 of the subject agreement has also been engaged.  This provided:

“[The defendants] hereby [declare and confirm] that no third party … has any right or interest whatsoever, whether legal or equitable, in [the suit property]. … In the event of any valid third party claim to [the suit property] on or before completion, whether legal or equitable, [the defendants] shall forthwith return the deposits paid herein to [the plaintiffs] in full and without prejudice to [the plaintiffs’] right to claim against [the defendants] for all losses and damages sustained by [the plaintiffs] … ”.

23.By reason of the above matters, irrespective of whether clause 16 or 24 was the more appropriate clause, I conclude that this line of defence has no merit.

(c)   Was good title to the subject property shown?

24.The defendants’ argument here is essentially that Mr Wong’s claims were not “valid” claims falling with clause 24 (see para 5 and 22 above).

25.They rely on the lis pendens registered by Mr Wong before the execution of the subject agreement as the basis for such an argument.  The argument runs something like this:

(1) clause 24 was intended to be a term for allocating the risk of a third party (and the consequences flowing from such risk) (para 112, defendants’ skeleton submissions);

(2) the said lis pendens were information reasonably available to the public;

(3) because of such publicly available information, “[it] must have been contemplated … by [the contracting parties]” that the risk of a third party claim not being resolved before completion be borne by the plaintiffs (para 115 to 122, defendants’ skeleton submissions).

26.The above argument suffers from more than one problem.  First, there is no evidence in support of para 25(2) and (3) above; there is no evidence the plaintiffs actually knew of, or the parties specifically discussed, Mr Wong’s claims (let alone reaching any consensus about that) before the date of the subject agreement.  In the absence of knowledge (or communication), there is no basis for concluding such was within the parties’ contemplation.

27.Secondly, clause 24 begins with an express warranty made by the defendants.  That being the case, the only reasonable construction of clause 24 is the defendants were obliged to show that there is no valid third party claim (in case any such claim should appear (as in Mr Wong’s case)).  The word “valid” is used to define the defendants’ obligation (that is, they do not need to ensure by the time of completion there is no third party claim at all (even if invalid) but to ensure there is no valid claim).  However, the word “valid” does not somehow shift the burden to the plaintiffs to show third parties’ claims are not valid.  Nor is it reasonable to construe clause 24 to mean that the plaintiffs would have to wait indefinitely for the defendants to show that the claim is invalid.

28.The defendants also contend that Mr Wong’s claim (of a trust resulting from financial contribution) is obviously groundless.  I do not agree that a reasonably competent conveyancer must invariably so conclude before 22 June 2011.

(d)   Loss and damages

29.The plaintiffs’ heads of claim are:

(a) return of the $400,000 deposit;

(b) damages for loss of bargain;

(c) wasted conveyancing costs and expenses;

(d) rental expenses (22 June to 29 August 2011);

(e) interest.

30.Having found against the defendants regarding liability, there is no valid defence for the claim for the return of deposit (para 29(a) above) (and none has been put forth).

31.In relation to the claim for loss of bargain (para 29(b) above), the defendants contend that:

(1) the Kornhill property, being a “substitute” property, cannot provide a proper basis for assessing such loss because it cannot be regarded as an appropriate “comparable” having similar attributes/quality as the suit property;

(2) damages for loss of bargain, usually regarded by law as the price of the suit property at completion, can only be assessed by using the value of suitable comparables on that date;

(3) the defendants’ valuation expert (“the defendants’ expert”) assessed the value of the suit property to be less than the price of the subject agreement (see para 32 to 36 below);

(4) the plaintiffs’ valuation expert (“the plaintiffs’ expert”) assessed the value of the suit property to be more than the price of the subject agreement, but his opinion ought not be accepted.

32.Para 31(1) above is (correctly) not raised by the plaintiffs and so is not an issue before the court.  Para 31(2) above is not a legal proposition in dispute.  Para 31(3) and (4) above should be considered together, and ultimately depends on whether the opinion of the plaintiffs’ expert or the defendants’ expert is preferred by the court.

33.The first thing to note is both experts accept that, from 22 June to 22 July 2011, there was a downward price trend in the property market.

34.Having so concluded, the plaintiffs’ expert nonetheless opines that the market price of the suit property:

(a) on 22 June 2011 was $4.29 million;

(b) on 22 July 2011 was $4.23 million.

The above valuation was later revised to $4.14 million and $4.08 million respectively.

35.On the other hand, the defendants’ expert opines that the market price of the suit property:

(1) on 22 June 2011 was $3.8 million;

(2) on 22 July 2011 was $3.79 million.

The above valuation was later revised to $4 million and $3.94 million respectively.

36.The revised valuation figures were set out in a joint report of both experts, after they have considered each other’s earlier valuation reports.  The price difference between the experts was:

(a) $140,000 for 22 June 2011 (about 3.5% from both the plaintiffs’ valuation and the defendants’ valuation);

(b) $140,000 for 22 July 2011 (about 3.5% from both the plaintiffs’ valuation and the defendants’ valuation).

37.The main reason why the experts arrived at slightly different values (a difference of about 3% to 3.4%) was whether comparables 5 and 6 (out of 9 comparables) were the most similar to the suit property: the defendants’ expert thought so whereas the plaintiffs’ expert thought otherwise.

38.Comparables 5 and 6 are located at Hennessy Road, Wan Chai while the suit property is located at Wan Chai Road.  The defendants’ considered them to be proximate enough (about 5 minutes’ walking distance) and most similar in other characteristics.  The plaintiffs’ expert considered them to be too far away and therefore ought not be preferred over the other 7 comparables which are also located at Wan Chai Road.

39.While it is possible to analyse in details micro factors such as the distance of the comparables from the suit property, their orientation, layout and state of maintenance, the overall impression which one gets from the relatively minor price differences between the purchase price and the valuation figures (para 34 to 36 above) is that the market price has not changed in any substantial way between the date of the subject agreement and the date of scheduled completion (be it 22 June or 22 July 2011).

40.Accordingly, I agree with the defendants there is no satisfactory evidence in support of the loss of bargain claim, even if the opinion of the plaintiffs’ expert is to be preferred.

41.In relation to para 29(c) above, the stamp duty which the plaintiffs paid has already been refunded.  The plaintiffs accept that they have not paid the estate agent’s commission, but seeks a declaration that they be indemnified by the defendants for any such claim.  The defendants dispute the declaration relief on the ground that, if they are found to be the party in default, the subject agreement provided that they should be responsible for paying estate agent’s commission.

42.Wasted conveyancing costs ($5,000) is not a contested item in the defendants’ skeleton submissions (which only contests liability for such costs if the plaintiffs were awarded damages for loss of bargain (para 141(a) thereof)).

43.In relation to para 29(d) above, the defendants argue that the plaintiffs would have to pay rent anyway because the suit property was in a dilapidated state and would require substantial renovation works to be carried out.  This could last for months.  Rental expenses for about 2 months would therefore have to be incurred in any event.

44.I agree with the defendants regarding para 41 and 43 above (for the reasons they put forth).

CONCLUSION

45.To conclude, I find for the plaintiffs as regards liability.  Accordingly, judgment will be entered in their favour for:

(1) $400,000 being refund of the deposit;

(2) $5,000 being wasted conveyancing costs.

There will also be an order along the lines of para 8 above.

OTHER MATTERS

46.The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS

47.It is possible the parties would wish to put forth further submissions regarding the costs of this action after having considered the outcome of this action.  For this purpose:

(a) the defendants are at liberty to lodge with court and serve written submissions on costs within 21 days from today;

(b) the plaintiffs are at liberty to lodge with court and serve written submissions on costs within 21 days thereafter.

Mr Kevin Li, instructed by Y L Yeung & Co, for the plaintiffs

Mr Adrian But, instructed by C K Charles Ho & Co, for the defendants