Chao Chiung Yo, The Executor of the Estate of Madam Leung Hing Shan, Deceased v. Sam Yu Lik Eric

HCMP 12/2023 and
HCMP 15/2023
(Heard Together)

[2024] HKCFI 1377

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 12 OF 2023

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 15 OF 2023

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J U D G M E N T

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A.   INTRODUCTION

1.The present proceedings arose from an aborted conveyancing transaction.  In that transaction, Mr Chao Chiung Yo, the executor of the estate of Madam Leung Hing Shan, deceased (“Estate”), is the vendor (“Vendor”).  Mr Sam Yu Lik Eric is the purchaser (“Purchaser”).  In HCMP 12/2003, the Vendor is the plaintiff and the Purchaser is the defendant.  In HCMP 15/2003, the Purchaser is the plaintiff and the Vendor is the defendant.  Both Originating Summonses were taken out on 4 January 2023 and they crossed with each other. 

2.By the order of Master J Wong dated 16 May 2023, both actions are to be heard together.

B. ; RELEVANT FACTUAL BACKGROUND

B.1  Events leading to the Provisional Agreement for Sale and Purchase dated 2 September 2022

3.I would adopt the undisputed (or indisputable) factual background set out in the Purchaser’s Skeleton Submissions.

4.The Vendor is the executor of the estate of Leung Hing Shan, deceased (“Deceased”), who owned, among other properties:

(1)  Flat C, 14^th Floor, Skyscraper (“Building”), No 132-142 Tin Hau Temple Road (“Flat”); and

(2)  Parking Space No 100 on the Lower Ground Floor of the Building (“Car Parking Space”)

(collectively the “Property”).

5.The Deceased passed away on 5 December 2021, leaving a will made on 13 October 2016 (“Will”), appointing the Vendor as the executor.

6.On 13 April 2022, the Purchaser viewed the Property; he planned to sell his residence and moved to another one.  After negotiation, the Vendor agreed to sell and the Purchaser agreed to purchase the Property at $42,000,000.00.

7.On 18 April 2022, the Purchaser met the Vendor in the estate agent’s office for signing the Provisional Agreement.  The Vendor’s agent disclosed for the first time that the Vendor was still waiting for the grant of the probate.  He indicated that probate would be granted soon and assured that it was just a matter of procedure.  The parties therefore signed the Provisional Agreement and the Purchaser drew a cheque in the amount of $2,100,000.00 as initial deposit in favour of the Vendor’s solicitors.

8.This Provisional Agreement had the following time-table:

(1)  initial deposit in the amount of $2,100,000.00 be paid upon signing the same;

(2)  further deposit in the amount of $2,100,000.00 be paid on or before 4 May 2022;

(3)  the Formal Agreement be signed on or before 4 May 2022; and

(4)  completion on or before 18 July 2022 when the balance in the amount of $37,800,000.00 be paid.

9.Upon consultation with his solicitors, the Purchaser conveyed to the Vendor’s agent his concern that it was pre-mature for the Vendor to enter into the Provisional Agreement as probate had not yet been granted.  The agent assured that the Vendor would sign another Provisional Agreement to replace the existing one after the grant of probate.

10.While the grant of probate was still pending, on 4 May 2022 the Purchaser paid the further deposit in the sum of $2,100,000.00 anyway.

11.In late June 2022, the Vendor’s agent informed the Purchaser that completion could not take place on 18 July 2022 as scheduled because the probate had not been granted. On 7 July 2022 it was agreed that the Vendor shall pay for half of the rent of the Purchaser’s temporary accommodation from 19 July 2022 until the actual completion.

12.On 4 July 2022, the Purchaser completed the sale of his residence; he originally planned that he and his family could soon move to the Flat.  His plan did not materialize.

13.It was not until 25 August 2022 when probate was granted.

14.On 30 August 2022, the Vendor’s solicitors delivered the title deeds and documents to the Purchaser’s solicitors for investigation of title.

B.2    The Provisional Agreement for Sale and Purchase dated 2 September 2022

15.On 2 September 2022, the Vendor and the Purchaser entered into a second Provisional Agreement (with a Supplemental Agreement) (“Agreement”)  superseding the previous one.

16.The Agreement contains, inter alia, the following terms:

Clause 1

The Vendor agreed to sell and the Purchaser agreed to purchase the Flat and the Car parking Space at the price of $42,000,000.00.

Clause 2

(a)  $2,100,000.00 shall be paid upon signing the Agreement as initial deposit;

(b)  $2,100,000.00 shall be paid on or before 5 September 2022 as further deposit;

(c)  $37,800,000.00 being balance of purchase price shall be paid on completion on or before 14 October 2022; and

(d)  the Formal Agreement for Sale and Purchase shall be signed on or before 9 September 2022.

Clause 3

The Property is to be sold to the Purchaser free from encumbrances.

Clause 7

“Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of this Agreement and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.” (Emphasis supplied)

Clause 8

“Should the Purchaser fail to complete the purchase in the manner herein contained, the deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said Premises to anyone he thinks fit. The Purchaser shall be liable to pay the stamp duty of this Agreement and the Vendor shall not sue the Purchaser for any liabilities and/or damages or to enforce specific performance.”

Clause 9

The estate agent shall be entitled to receive $420,000.00 from the Vendor and $420,000.00 from the Purchaser as commission.

Clause 10

The defaulting party shall compensate the estate agent $840,000.00 as liquidated damages.

Clause 16

“Time shall in every respect be of the essence in this Agreement.”

Clause 18

“買賣雙方同意一切大廈維修費（以管理處最後落實通過之維修金額為準）於物業成交日前由賣方負責，成交日後則由買方負責。如樓宇之管理費公司已發出有關大廈維修分期通知收費，雙方同意成交前所需繳付之分期維修費由賣方負責，而成交後則由買方承接繳付有關大廈維修費用。”

B.3    The requisitions and purported answers

17.By a letter dated 7 September 2022, the Purchaser’s solicitors raised, inter alia, the following requisitions:

(1)  The Car Parking Layout Plan Memorial No UB491534

The Purchaser’s solicitors asked for the original or certified copy of the Car Parking Layout Plan.

(2)  Certified copy of the Probate duly registered in the Land Registry

The Purchaser’s solicitors asked for a certified copy of the Probate duly registered in the Land Registry.

(3)  Notices issued by the Buildings Department

The Buildings Department had issued MBIS Notice No UMB/MB02/2101-092/0001 and MWIS Notice No UMW/MB02/2101-092/0001 regarding the common parts of the Building. The Purchaser’s solicitors asked for the said statutory notices with evidence of compliance including:

(i)    the prescribed inspection report submitted to the Buildings Department proving that a qualified person was appointed to carry out the prescribed inspection;

(ii)   the completion certificate submitted to and accepted by the Buildings Department proving that the prescribed repair works had been carried out and completed to the satisfaction of the Buildings Department; and

(iii)  evidence proving that all the payment and contributions payable by the Vendor for the compliance with the notices had been made.

18.On 8 September 2022, the Vendor’s solicitors delivered to the Purchaser’s solicitors a certified copy of the Probate under the cover of a letter dated 3 September 2022.

19.On the same day, ie, 8 September 2022, the Purchaser’s solicitors raised requisition on the Probate as follows:

Probate of the will of the Deceased – the power to sell the Car Parking Space

“We note that clause 4(i) of the will of the Deceased contains an express restriction which restricts the sale of all her landed properties other than the properties referred to in clauses 1 to 3 of her will for a period of 10 years from the date of her death (ie, 5 December 2021). Given such express restriction, we take the view that your client is not entitled to sell Parking Space No.100 on LG/F Skyscraper 132-142 Tin Hau Temple Road, Hong Kong (the “Parking Space”) to our client.  Please explain why your client has the power to sell the Parking Space to our client before the expiry of the 10 years’ period from the date of death of the Deceased.”

20.The parties did not enter into a Formal Agreement on 9 September 2022 as scheduled in the Agreement.

21.On 20 September 2022, the Vendor’s solicitors answered the requisitions raised by the Purchaser’s solicitors as follows:

(1)  The Car Parking Layout Plan Memorial No UB491534

The Vendor’s solicitors said that the Car Parking Layout Plan fell outside section 13(1)(a) of the Conveyancing and Property Ordinance, Cap 219 and production was not necessary.

(2)  The Probate

The Vendor’s solicitors said that they would send a registered Probate for the Purchaser’s retention to complete the chain of title.

(3)  Notices issued by the Buildings Department

The answer given was that the sale and purchase would be subject to the said notices.

(4)  Probate of the will of the Deceased – the power to sell the Car Parking Space

The Vendor’s solicitors said that the Flat and the Car Parking Space were in one and the same land search card and no other share could be allotted to the Car Parking Space.  They therefore opined that there was no restriction on the sale of the same.

22.On 22 September 2022, the Purchaser’s solicitors replied as follows:

(1)  The Car Parking Layout Plan Memorial No UB491534

The Property contracted to be sold included the Car Parking Space.  The Vendor was obliged to provide a certified copy of the Car Parking Layout Plan Memorial No UB491534 to show that the Car Parking Space corresponded with the approved plan.

(2)  The Probate

The Purchaser’s solicitors indicated that they awaited a certified copy of the Probate duly registered in the Land Registry.

(3)  Notices issued by the Buildings Department

The Vendor should bear the cost of contribution if the demand note for contribution for the compliance of the Notices were issued before completion.  The Vendor was asked to confirm that no such demand note had been issued.

(4)  Probate of the will of the Deceased – the power to sell the Car Parking Space

The Vendor’s solicitors had not answered this requisition at all.  The Vendor’s solicitors were referred to section 54(4) and (5) of the Probate and Administration Ordinance, Cap 10.  The DMC showed that 13/5240 share was separately and independently allocated to the Car Parking Space.  Further, the DMC did not contain any restriction on the sale of the Car Parking Space separately and independently from the Flat.

23.On 30 September 2022, the Vendor’s solicitors wrote to the Purchaser’s solicitors alleging that the Vendor and the Purchaser had agreed to postpone the scheduled completion from 14 October 2022 to 30 December 2022.

24.On 5 October 2022, the Purchaser’s solicitors wrote to the Vendor’s solicitors denying that the Purchaser had agreed to postpone the completion date.

25.On 10 October 2022, the Vendors solicitors offered to reduce the purchase price by $1,000,000.00 for an agreement of the Purchaser to postpone the completion date to 30 December 2022.  That did not meet with a positive response from the Purchaser’s solicitors.

26.On 12 October 2022, 2 days before the scheduled completion on 14 October 2022, the Vendor’s solicitors purported to answer the requisition as follows:

(1)  The Car Parking Layout Plan Memorial No UB491534

The Vendor’s solicitors sent the plain copy of the Car Parking Layout Plan and undertook to provide a certified copy.

(2)  The Probate

The Vendor’s solicitors said that they submitted the Probate to the Land Registry for registration on 2 September 2022 and would chase the registration as soon as possible.

(3)  Notices issued by the Buildings Department

The Vendor’s solicitors purported to provide a copy of the relevant search showing compliance.

(4)  Probate of the will of the Deceased – the power to sell the Car Parking Space

The Vendor was applying to the Probate Registry for rectification of the Will on an urgent basis.

27.On 13 October 2022, the Vendor’s solicitors wrote to the Probate Registry, asking for an indulgence to give priority to the Vendor’s application for rectifying the Will.

28.On 14 October 2022, the scheduled date of completion, the Vendor’s solicitors send the Purchaser’s solicitors a copy of their letter of 13 October 2022 to the Probate Registry.

29.On the same day, ie, 14 October 2022, the Purchaser’s solicitors wrote to the Vendor’s solicitors insisting on their requisitions as follows:

(1)  The Car Parking Layout Plan Memorial No UB491534

The Purchaser’s solicitors asked for a certified copy of the Car Parking Layout Plan.

(2)  The Probate

The Purchaser’s solicitors insisted on a registered Probate.

(3)  Notices issued by the Buildings Department

The Purchaser’s solicitors insisted to have the said notices with evidence of compliance.

(4)  Probate of the will of the Deceased – the power to sell the Car Parking Space

The Purchaser’s solicitors indicated that the answer from the Vendor’s solicitors was unsatisfactory and insisted on their requisition.

30.On 17 October 2022, 3 days after the scheduled completion, the Vendor’s solicitors wrote to the Purchaser’s solicitors, saying that:

(1)  The Car Parking Layout Plan Memorial No UB491534

“We will follow up.”

(2)  The Probate

“Noted.”

(3)  Notices issued by the Buildings Department

“With respect, we submit as owner of individual flat, our client shall not be requested to comply with Notice relating to common part.”

(4)  Probate of the will of the Deceased – the power to sell the Car Parking Space

“Noted.”

31.On the same day, ie, 17 October 2022, the Purchaser’s solicitors wrote to the Vendor’s solicitors:

(1)  It was an implied term of the Agreement that the Vendor shall prove and give good title.  In repudiation of the Agreement, the Vendor had failed to prove good title by satisfactorily answering the requisitions.

(2)  The Purchaser was always ready, willing and able to complete.

(3)  Because of the Vendor’s repudiation, completion did not take place on 14 October 2022 in accordance with the Agreement.

(4)  The Purchaser accepted the Vendor’s repudiation and demanded for refund of the deposits in the sum of $4,200,000.00 together with a sum of $2,100,000.00 (being the amount of the initial deposit) as liquidated damages pursuant to clause 7 of the Agreement within 7 days.

(5)  The Purchaser had suffered losses including but not limited to rental loss, design and pre-renovation expenses and additional legal fees.  The Purchaser reserved his rights regarding such losses.

32.On 3 November 2022, the Vendor’s solicitors refunded the deposits in the amount of $4,200,000.00 without paying the liquidated damages in the amount of $2,100,000.00.  The Vendor’s solicitors demanded for a withdrawal of the registration of the Agreement from the Land Registry and threatened with legal action.

33.On 9 November 2022, the Purchaser’s solicitors replied that unless and until the Vendor paid the liquidated damages in the amount of $2,100,000.00, the Purchaser was entitled to a lien over the Property, which stemmed from the Agreement.  There was no legal basis for demanding a withdrawal of the registration of the same from the Land Registry.

34.On 4 January 2023, both parties issued the Originating Summons, which crossed with each other.

35.Pursuant to the Consent Order dated 16 May 2023 made by Master J Wong in HCMP 12/2023, the Vendor on 22 May 2023 paid into court the sum of $2,520,000.00 as security for liquidated damages and/or damages and/or other claims of the Purchaser, as a result of which the registration of the Agreement be vacated from the Land Registry.  The Vendor’s claim in HCMP 12/2023 is now limited to a claim for costs.  By paragraph 4 of the Consent Order, the Vendor’s claim for costs was ordered to stand as a counterclaim by the Vendor against the Purchaser in HCMP 15/2023.

C.  WHO WAS IN BREACH OF THE AGREEMENT ON THE COMPLETION DATE

36.It has been well settled that even if a contract for sale and purchase of land is silent on this point, it is an implied term that the Vendor has the duty to show good title and has to satisfactorily answer requisitions: see Active Keen Industries Limited v Fok Chi-keong [1994] 1 HKLR 396. 

37.Clause 16 of the Agreement provides that time shall in every respect be of essence. 

C.1  The Vendor’s failure to satisfactorily answer the requisitions and to show good title

38.Probate of the will of the Deceased – the power to sell the Car Parking Space

(1)  I agree that among the 4 outstanding requisitions, this is the most important requisition, which in fact goes to the root of title.

(2)  While the Flat was a specific gift by the Deceased to the Plaintiff under the Will, the Car Parking Space was not.  It therefore fell into real properties of the residuary estate and was subject to the restriction in the Will that the same was not to be sold within 10 years from the death of the Deceased.

(3)  The Vendor’s original answer that the Car Parking Space was not allocated an undivided share separate and distinct from the Flat did not help the Vendor because it would not dispel any reasonable doubt that the Vendor as the Executor had no power to sell it.  In any event, it had been shown to be false: the Car Parking Space does in fact have a share allocated to it under the DMC, and there is no restriction for the Car Parking Space to be sold separately from the Flat.  

(4)  Section 54(4) and (5) of the Probate and Administration Ordinance, Cap 10 provides as follows:

“(4) A personal representative may charge, mortgage or otherwise dispose of any property vested in him, as he may think proper, subject to any restriction which may be imposed in this behalf by the will of the deceased and to the provisions of this section:
Provided that an executor may dispose of any property notwithstanding any restriction so imposed, if he does so in accordance with an order of the court.

(5) The disposal of property by a personal representative in contravention of the provisions of this section shall be voidable at the instance of any other person interested in the property.”

Completion in such circumstances would mean that the Purchaser would acquire only a defeasible title to the Car Parking Space.

(5)  The Vendor thus thought fit to apply to the Probate Registry for rectification of the Will, whereby the Vendor’s solicitors had to acknowledge that it was a mistake on their part in drawing up the Will.

(6)  As at the date of the scheduled completion, ie, 14 October 2022, an order rectifying the Will had not been made and there was no sign whatsoever whether, and if so when, it would be granted.  In fact, from the documents now available, it seems that the order rectifying the Will was not made until 6 July 2023.  Plainly, the Purchaser was entitled to terminate the Agreement on this ground alone.

(7)  Accordingly, I hold that this requisition has been reasonably and properly raised by the Purchaser, but has not been answered satisfactorily by the Vendor.

C.2  Other outstanding requisitions

39.The Vendor’s failure to satisfactorily answer the requisition on his power to sell the Car Parking Space under the Will is already sufficient to dispose of the question of breach.  I shall briefly deal with the other requisitions raised by the Purchaser.

40.The Car Parking Layout Plan Memorial No UB491534

(1)  I hold that this requisition was reasonably and properly raised by the Purchaser, and has not been answered satisfactorily by the Vendor.  

(2)  In the instant case, since no formal agreement was made, the common law position applied and the original was in fact required.  When the Vendor’s solicitors said they undertook to provide the certified copy, the Purchaser’s solicitors were in fact more than reasonable by not making an objection. Notwithstanding that, as at the date of the scheduled completion, the certified copy they undertook to provide was still not forthcoming.

(3)  In Paul Chen & Another v Lord Energy Ltd [1999] 1 HKLRD 205, at 211A-B, Li CJ held that:

“The legal position was that the obligation was squarely upon the vendor to show good title. Where a document needs to be produced by the vendor as proof of title, it is no answer for him to say to the purchaser that he could easily obtain it himself.

In my view, the letter attaching the carpark layout plans was a document which the vendor needed to produce (by way of certified copy) to prove title. …”. (Emphasis supplied)

41.Certified copy of the Probate duly registered in the Land Registry

(1)  I do not regard this as a proper requisition on title.  Indeed, Counsel for the Purchaser fairly accepts that non-registration of the Probate may not affect title as such.

42.Notices issued by the Buildings Department

(1)  It is important to note the terms in which the requisition was raised (see paragraph 17(3) above).

(2)  I do not consider this a requisition reasonably and properly raised as the available materials do not support the assumption that “repair works” had been ordered, when the notices were apparently issued under respectively the Mandatory Building Inspection Scheme and the Mandatory Window Inspection Scheme.

D.  THE PURCHASER’S REMEDIES

D.1  Clause 7 of the Agreement

43.To recap, clause 7 provides that: “Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of this Agreement and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.” (Emphasis supplied)

44.The “initial deposit” under clause 7 of the Agreement is $2,100,000.00.

45.The Vendor contends that the initial deposit in the amount of $2,100,000.00 (being 5% of the purchase price) was not a genuine pre-estimate of loss because:

(1)  It was arbitrary as there was no discussion on calculation.

(2)  The Purchaser has not suffered any real loss in a declining property market.

46.I do not agree with the Vendor’s submissions.

47.In Cavendish v El Makdessi [2016] 2 All ER 519, the UK Supreme Court stated (at §31 of the Judgment) as follows:

“… The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal. To describe it as a deterrent (or, to use the Latin equivalent, in terrorem) does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing) ‘extravagant’ by reference to some norm.” (Emphasis supplied)

48.This approach was endorsed and followed by Lam VP (as Lam PJ then was) in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185 at §§2-3.

49.Following from this principle, in the first place, the point taken by the Vendor that there was no express discussion on, or “pre-estimate” of, the Purchaser’s loss as at the time of the Agreement is neither here nor there.  There was no need to have an express discussion before clause 7 became valid.  Even if there was no such express discussion, clause 7 is a term in the Agreement of which both parties have had full knowledge and on which they have agreed.

50.Most importantly, the true test is whether under clause 7 the payment of the initial deposit in the amount of $2,100,000.00 (ie, 5% of the purchase price) by the Vendor in case of his failure to perform the Agreement is “unconscionable” or “extravagant”.

51.I accept the Purchaser’s submission that in a volatile property market like that in Hong Kong, where for example a change in the Government’s stamp duty policy or a slight downward adjustment of interest rate, or the news of their likelihood, may cause a spike in the property market, an amount equivalent to 5% of the purchase price is by no means “unconscionable” or “extravagant”.

52.In Law Ting Pong Secondary School Ibid, Chu JA (as Chu VP then was) focused on the legitimate interest of the innocent party and whether the detriment placed on the contract-breaker is out of proportion to such interest.  At §69, Chu JA stated as follows:

“The law in relation to penalties was reviewed by the UK Supreme Court in the conjoined appeal of Cavendish Square Holdings v Makdessi and ParkingEye Ltd v Beavis, supra, in which it undertook a comprehensive review of the authorities on liquidated damages and penalties. It considered that while the traditional test (see §66 above) was a useful tool in a simple case, it was not easily applied to more complex cases (at §22). The true test was held to be whether the clause is out of all proportion to the innocent party’s legitimate interest in enforcing the contract. It further recognized that an innocent party could have a legitimate interest in the performance of the contract or some appropriate alternative to performance that goes beyond compensation. It was said by Lord Neuberger and Lord Sumption (with whom Lord Carnwath and Lord Clarke agreed) that (at §32):

The true test is whether the impugned provision is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect Lord Dunedin’s four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter’s primary obligations.”(Emphasis supplied)

53.Two points are to be noted, in particular, from the above.  First, the innocent party’s legitimate interest may go beyond compensation.  Second, the volatility of the Hong Kong property market is clearly one of the factors to be taking into account in determining the legitimate interest of the Purchaser in enforcing the Agreement.

54.Like the School in the Law Ting Pong Secondary School case, the Purchaser does have his legitimate interest to have the Vendor performing the Agreement.  He had since mid-2020 been viewing properties for the residence of his family (comprising his wife, their 2 children and the Purchaser himself).  He had viewed many properties before he found the Property which suited their needs.  He had signed a previous provisional agreement before the Vendor obtained the Probate and completion had been extended from 18 July 2022 under the previous provisional agreement to 14 October 2022 under the Agreement.  He had even sold his residence, which was completed in early July 2022, shortly before the original scheduled date of completion on 18 July 2022 and had to look for a temporary accommodation in another place.  He clearly had a legitimate interest in the Vendor performing the Agreement.

55.Taking a broad and flexible approach, I have no difficulty in coming to the conclusion that the liquidated damages provided for under clause 7 of the Agreement is not out of all proportion to the Purchaser’s legitimate interest in the performance of the Agreement.  The liquidated damages stipulated are neither “unconscionable” nor “extravagant”.

D.2  Indemnity of the potential liability for estate agent’s commission

56.In Yip Ngan Yee v Chan Tsz Yam, CACV 442/2000 (unrep, 12/12/2000), Le Pichon JA held (at page 12) as follows:

“The purchasers also seek a declaration that the vendors indemnify them for any claim of the estate agent for commission under the provisional agreement. In principle, I do not see any reason why such a declaration should not be made. Although no demand has been made of the purchasers to date, the claim cannot be ruled out altogether because the limitation period has not expired.”

57.At the hearing, counsel for the Purchaser confirmed that no estate agent’s commission has been paid by the Purchaser and no demand has been made of the Purchaser to date. However, such a claim cannot be ruled out.  In the circumstances, I would grant the same declaration as in the Yip Ngan Yee case.

D.3  Equitable lien

58.In my view, the Purchaser’s right to an equitable lien is subsumed in the Consent Order referred to at paragraph 35 above.

59.The nature of equitable lien has been analysed by DHCJ K Wong in HKMC Mortgage Management Ltd v Tse Wing Ip, [2019] HKCFI 1721 at §31:

“… In my judgement, there is no doubt that an equitable lien is derived by the operation of equity from the sale and purchase relationship. Once the Formal Agreement was signed, the equitable interest in the Property contracted to be sold passes to the plaintiffs as purchaser. When the 1^st defendant as vendor defaulted, equity operated to give the plaintiffs the equitable lien to enable them to make a proprietary claim for the loss against the Property as security. …”

60.Thus understood, the equitable lien is a derivative right arising from the Agreement, and once the registration of the Agreement at the Land Registry is ordered to be vacated, the equitable lien is also affected, to be replaced by the security ordered to be paid into court.

61.For the above reason, I am not inclined to grant a declaration of equitable lien in favour of the Purchaser.

E.  DISPOSITION

62.For the reasons stated above, I would make the following order:

(1)  a declaration that good title to the Property had not been shown by the Vendor;

(2)  a declaration that the Vendor was in repudiatory breach of the Agreement by reason of his failure to show good title and/or to satisfactorily answer requisitions;

(3)  a declaration that the Purchaser had duly accepted the Vendor’s repudiatory breach by a letter dated 17 October 2022;

(4)  an order that the Vendor do forthwith pay the Purchaser liquidated damages in the sum of $2,100,000.00 pursuant to clause 7 of the Agreement;

(5)  a declaration that the Purchaser is entitled to be reimbursed and/or indemnified by the Vendor the estate agent’s commission in the amount of $420,000.00 if it shall become payable by the Purchaser;

(6)  interest on $2,100,000.00 at 1% over the best lending rate offered by HSBC from 15 October 2022 to the date of this order, and thereafter at the Judgment Rate until payment; and

(7)  costs of HCMP 12/2023 and HCMP 15/2023 (including all costs reserved, if any) be paid by the Vendor to the Purchaser, such costs are to be taxed if not agreed.

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

64.Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

Mr Ian Chu, instructed by Messrs Raymond Cheung & Chan, for the plaintiff (in HCMP 12/2023) and for the defendant (in HCMP 15/2023)

Mr Anthony Cheung, instructed by Messrs Joyce Chan & Co, for the defendant (in HCMP 12/2023) and for the plaintiff (in HCMP 15/2023)