Chung Chi Keung and Another v. Chiu Wai Ka
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HCA004496/1997 HCA4496/1997 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.4496 OF 1997 ------------------
------------------- Coram: Hon Cheung J in Court Dates of Hearing: 14 and 15 May 2001 Date of Judgment: 29 May 2001 ---------------------- J U D G M E N T ---------------------- The claim 1. In this action, the plaintiffs claim the sum of $80,000 or alternatively $62,250 from the defendant. The two agreements 2. The plaintiffs are husband and wife. On 5 August 1995, they entered into two provisional sale and purchase agreements with the defendant. The first provisional agreement was for the purchase of Flat A, 12/F, Tower 1, Bayshore Towers, Ma On Shan, Shatin ("Flat 12A"). The second provisional agreement was for the purchase of carparking space No. 27 on Level 1 of Bayshore Towers ("the carpark"). The purchase price of the carpark was $530,000. A $40,000 deposit was paid by the plaintiffs. The sale relating to Flat 12A was duly completed on 25 September 1995. A dispute arises on the sale of the carpark. 3. The defendant and his wife had on 24 July 1995 entered into a provisional agreement with the developer of Bayshore Towers, namely Poko Shine Limited ("Poko") for the purchase of Flat 12A. The formal agreement with Poko was entered on 27 July 1995. At the time when the defendant entered into the provisional agreement for the sale of the carpark to the plaintiffs, he had not yet bought the carpark from Poko. Instead he had on 27 July 1995 paid $50,000 to Poko which gave him a right to buy the carpark at $500,000. The sale of the carpark 4. The relevant terms of the provisional agreement between the parties on the carpark are as follows :
5. On 22 September 1995, the defendant entered into a provisional agreement with Poko for the purchase of the carpark. The formal agreement was signed on 27 September 1995. The sale was completed on 14 October 1996. After acquiring the carpark, the defendant did not sell the carpark to the plaintiffs. Instead, on 15 October 1996 he entered into an agreement with another purchaser called Calvin Lin to sell the carpark at $578,000. The sale was completed on 14 November 1996. On 13 January 1997, the defendant returned the deposit of $40,000 to the plaintiffs. Basis of the plaintiffs' claim 6. The plaintiffs' claim of $80,000 is based on clause (E) of the provisional agreement which provides that if the defendant was in breach and refused to sell then he has to compensate the purchaser with double of the deposit. The deposit that had already been paid shall be returned to the purchaser. The alternative claim of $62,250 is made up as follows. The plaintiffs had to rent a carpark for their own use after the defendant failed to sell the carpark to them when he had already acquired the carpark from Poko on 14 October 1996. The carpark was rented from the management office of Bayshore Towers by way of a license at monthly license fees of $2,500 from 14 October 1996 to 31 October 1996 and $2,750 from 1 November 1996 to 25 February 1997. During this period, they paid a total of $12,250. Eventually the plaintiffs bought another carpark at Bayshore Towers at the sum of $580,000. They had to pay $50,000 extra for the carpark from the original price of $530,000 they had agreed with the defendant. Accordingly, they claimed the sum of $62,250, being the license fees and the extra purchase price of $50,000 from the defendant. On Hing and the parties 7. The two provisional agreements between the parties were signed at the office of a property agent called "On Hing Consultant Limited" ("On Hing"). Mr Ho Cheuk, Johnny ("Mr Ho") was a staff of On Hing in charge of the sale. He was no longer an employee of On Hing. He gave evidence for the plaintiffs. It is not necessary for me to go into details on the circumstances in which the two provisional agreements were signed. The defendant said that he had advertised the sale of Flat 12A in the newspaper and he was later approached by On Hing. Mr Ho accepted that the colleagues in his firm might have contacted the defendant beforehand but he was the one who received the call from the defendant to place the sale on his behalf. I accept Mr Ho's evidence that when he discussed the matter with the defendant, the defendant had informed him that he had a flat and a carpark in the Bayshore Towers which he intended to sell. The defendant told him that he was about to emigrate and he was prepared to sell these properties at the same price he had purchased but that he wanted to recover the expenses incurred in the sale so that he would not suffer any loss. Mr Ho then calculated the expenses for the defendant, these were in the form of stamp duties and solicitors' charge. The figures that were provided by him to the defendant were a lump sum in respect of Flat 12A which covered the original purchase price plus the expenses. The carpark was agreed at $500,000 which was the price that the defendant would acquire from Poko. This method was adopted because there was very little expenses in relation to the sale of the carpark. 8. The plaintiffs and the defendant, however, only met for the first time on 5 August 1995 when they attended On Hing. Ms Cheung Yung Ming ("Ms Cheung") of the plaintiffs said that she had very little recollection of the meeting because it was so long ago. At this meeting, the manager of the On Hing was also present. He advised two agreements should be prepared for the sale of Flat 12A and the carpark. The discussion was first on Flat 12A and then on the carpark. 9. It is common ground that the sale of Flat 12A by the defendant to the plaintiffs was in the form of a confirmor sale, with Poko assigning the flat directly to the plaintiffs and the defendant and his wife acting as the confirmors in the assignment. Mr Ho agreed that this mode of sale was raised by the defendant on 5 August 1998 meeting. He said that this was the least expensive way of concluding the sale between the parties, otherwise, the defendant would need to buy the flat first and then sell it to the plaintiffs. The defendant may be required to obtain a mortgage on the flat. This additional expenses would affect the plaintiffs as well since they had to pay for the expenses. 10. Ms Cheung also agreed that as far as Flat 12A was concerned, the mode of sale was by way of confirmor sale effected by the change of name of the purchaser. She agreed with counsel that this was her understanding on 5 August 1995. When I specifically asked her whether this matter was discussed, she said that it was not really discussed but she knew the defendant's sale with Poko was not yet completed, since he need to sell quickly, therefore it was to be done by change of name. She said she and her husband wanted to pay less for the sale. Later her evidence was somewhat modified when she said she only knew of the mode of sale when she attended the solicitors' office later on. In paragraph 7 of her witness statement, it was stated that after negotiation, the defendant and his wife in the capacity of a confirmor, eventually sold the property to them at the price of HK$3,480,000 which covered the "level price of the property at HK$3,376,000 plus part of the expenses (i.e. HK$104,000 ), having been incurred by" the defendant and his wife. Ms Cheung explained that by the time she prepared this witness statement, she was aware of the mode of sale, therefore she had no objection to what was written in paragraph 7 of her witness statement which was in fact drafted by her lawyers. The defendant's case on the carpark 11. The defendant, who was an engineer in the employment of the Public Works Department said that, at this meeting, he had also specifically mentioned that the sale of the carpark was to be done by sub-sale and by change of name. The defendant said that at the meeting they dealt with the sale of Flat 12A first, which was to be by way of changing the name of the purchaser with Poko, then they dealt with the carpark and the understanding was the same, namely, the plaintiffs would substitute him to pay for the deposits and the balance of the purchase price. He denied that there was any understanding for him to complete the purchase of the carpark first before selling it to the plaintiffs because it would be troublesome for him to do so, and the parties agreed that if Poko agreed to the change of name, they would effect the sale by changing the name of the purchaser with Poko. He said he had told the plaintiffs that the sale of the carpark would depend on the developer selling to him and allowing the change of name. 12. The defendant stated that he had insisted clause (C)(1) to be inserted in the provisional agreement. This clause provides that "(C)(1)雙方同意於發展商指定日期到達雙方指定律師行辦理正式買賣合約手續。" "Both parties agreed on the day as decided by the developer go to the solicitors for the parties to sign the formal sale and purchase agreement and that the purchaser would then further pay the amount as decided by the developer." In his witness statement the defendant stated that : "the meaning of that clause was that the signing of the formal sale and purchase agreement would be by way of the plaintiffs substituting me to sign the formal sale and purchase agreement with the developer. The rationale behind was because I wanted to minimize our further involvement and did not wish to sign the formal agreement with the developer. Thus, after I had signed the memorandum of sale with the developer, I would then arrange the plaintiffs to substitute me and my wife to sign the formal sale and purchase agreement with the developer." 13. The defendant said that he also insisted to insert clause (H) which provides that : "(H) 雙方同意以上交易均以發展商可售出為準，否則本合約作廢。" "Both parties agreed that the above transaction was conditional on the agreement of the developer, failing which this agreement shall be cancelled, i.e. void and of no effect." In his witness statement, he stated that : "this clause was inserted in the agreement for the obvious reason that if the developer did not agree to the substitution of the plaintiffs for me to sign the formal agreement, then the second agreement would be void. Also, I had then not yet sign any agreement with the developer for the purchase of the carpark, I had to provide that in the event that my agreement to be signed with the developer prohibit this transaction for any other reason, the second agreement shall also be void and of no effect." 14. When the defendant entered into the formal agreement with Poko for the purchase of the carpark on 27 September 1995, there was a clause in the agreement which expressly prohibited the sale of the carpark before the completion of the sale. The relevant clause is clause 11 (1) which provides that :
15. The defendant said that because of this restriction, the provisional agreement he had signed with the plaintiffs was in breach of this formal agreement. As he had agreed with the plaintiffs under their provisional agreement that if the transaction was not permitted by Poko, the agreement with the plaintiffs "would be void and of no effect", he therefore proceeded to sign the formal agreement with Poko. Did the defendant mention the mode of sale for the carpark? 16. The first matter there has to be resolved in this case is whether the defendant had said on 5 August 1995 that the sale of carpark was to be done by plaintiffs substituting him as the purchaser with Poko. Mr Ho denied that there was any understanding as alleged by the defendant. Ms Cheung denied that there was any discussion as alleged by the defendant. In his witness statement, the defendant did not mention that he had said these things to the plaintiffs at the meeting on 5 August. In the cross-examination of Mr Ho, it was not put to him that the defendant had in fact said that the carpark sale was to be carried out by changing names, instead it was merely suggested that the understanding regarding the carpark was the same. The defendant's case was, of course, put to Ms Cheung. 17. I find that when the parties discussed on 5 August 1995 about the sale of the carpark, the defendant had not stated that he wanted the sale of the carpark to be done by changing of name from him to that of the plaintiffs. Furthermore, when the defendant wished to have clauses (C)(1) and (H) inserted, there was no mentioning by him about the two conditions of Poko selling to him and allowing the change of name. At that stage, the defendant only have a right to buy the carpark from Poko, there was no agreement yet between him and Poko on the purchase of the carpark. I do not accept the defendant's evidence that he had in fact raised the changing of name issue in relation to the carpark. My finding is that the discussion was focused on the defendant getting the carpark first. This is consistent with what Ms Cheung described as the spirit of the discussion regarding the cancellation of the provisional agreement : quite simply, if the defendant could not obtain the carpark from the developer, he would not be required to sell it to the plaintiffs. 18. I do not find that the slight change in Ms Cheung's evidence on her understanding of the mode of sale of Flat 12A affects my assessment of Ms Cheung as a truthful witness. She is a housewife and, although she is well educated, having a post-secondary education by attending evening classes, this was her and her husband's first purchase of properties. She was not lying in order to suit her case. I find that she was doing her best to recollect what happened on an event that took place so many years ago. I also find Mr Ho to be a truthful witness. Construction of the agreement 19. There was no discussion on 5 August 1995 that the defendant would acquire the carpark first either by cash payment or mortgage before re-selling it to the plaintiffs. Neither was it discussed that the sale would be in a form of a confirmor sale. In the absence of any discussion or agreement that the carpark would be sold by way of confirmor sale, did the parties actually intended that the sale of the carpark was to be conducted in such a manner? This involves a construction of the agreement between the parties. The well known case of Prenn v. Simmonds [1971] 1 WLR 1381 set out the principles in construction. A more recent authority is Investors' Compensation Scheme v. West Brownwich Building Society [1998] 1WLR 896, where the principles were affirmed and summarized. The starting point is that :
see also Jumbo King Ltd v. Faithful Properties Ltd & Others [1999] 2 HKCFAR 279. Mr Lam, counsel for the defendant, invited the court to find that there was an implied term in the provisional agreement that the sale would be by way of confirmor sale as well. Paragraph 13-004 of Chitty on Contracts 28th Edn., Vol. 1, Para. 13-004 stated that :
20. It is not disputed that on 5 August 1995 Poko had not yet sold the carparks in Bayshore Towers to the public. Furthermore, the number of carparks that were available for sale were fewer than the number of residential units. Poko would not sell carparking space to anyone who was not a purchaser or owner of a residential unit. Clause 32 of the Agreement and Conditions of Grant of the property upon which Bayshore Towers was situated provided that Poko could not, without the written consent of the government,
21. The fact that the sale of Flat 12A was in the form of a confirmor sale would not mean that the sale of the carpark would be in the same form as well. The obvious difference is that when the parties signed the two provisional agreements, the defendant had already had a contract with Poko to purchase Flat 12A, but in respect of the carpark, he had only paid $50,000 to Poko which gave him a right to buy the carpark from Poko. I am not prepared to find that the parties had intended that if the defendant was able to acquire the carpark from Poko, then the sale would necessarily be in the same form of a confirmor sale. The starting point is that when the defendant instructed Mr Ho to handle the sale of Flat 12A and the carpark, he had clearly stated that he wished to sell them at the same price that he bought together with the expenses he might incur so as to avoid making any loss in the sale to the plaintiffs. According to the formal agreement dated 27 July 1995 between Poko and the defendant for the sale of Flat 12A, the defendant had to pay for the stamp duty and registration fee payable on that agreement. Stamp duty that was paid for the formal agreement was $92,640 as endorsed on the top page of the agreement and also indicated in the memorandum dated 17 August 1995. The agreement also provided that each party shall pay his own legal costs and expenses for the preparation of approval and completion of that agreement. The original price of Flat 12A was $3,376,000. The defendant sold it for $3,480,000. The difference of $104,000 represented the expenses that the defendant had incurred in buying the flat from Poko. 22. The parties accepted and agreed that the confirmor sale would be the least expensive way to complete the sale of Flat 12A because the plaintiffs were responsible for the expenses. They might have to pay more if the defendant had to acquire it first before re-selling it to them. The situation is different in respect of the carpark. Mr Ho explained the stamp duty and the legal fees for the carpark were relatively small, in the region of $1,000 to $2,000. The plaintiffs were, nonetheless, prepared to pay an extra $30,000 for the carpark because at that stage the defendant had not bought the carpark and it was not known how much expenses he would incur in acquiring it. In my view, the $30,000 was intended by the parties to cover whatever expenses that the defendant might have to incur in acquiring the carpark from Poko and thereafter selling it to the plaintiffs. The sum of $30,000 is the best indication that the parties had not intended the sale of the carpark would be by way of confirmor sale whose purpose, in this case, was to ensure that the defendant would recover the expenses that he had incurred in acquiring Flat 12A and the plaintiffs would pay for the least expenses. If the parties had intended that the sale of the carpark would be by confirmor sale as well, the defendant would not have insisted on being paid $30,000 when the known expenses for a confirmor sale would be $1,000 - $2,000 and the plaintiffs would not have paid the $30,000 which was hugely in excess of any likely expenses that the defendant might incur if he acquired the carpark later on from Poko. 23. Clause (C)(1) does not assist the defendant at all. The words were chosen because at that stage it was not known whether the defendant would be able to acquire the carpark or not. Mr Ho had said that it was discussed and contemplated between the parties that once the defendant knew the date as stipulated by Poko to complete the sale and purchase of the carpark with Poko, he would notify On Hing and the plaintiffs so that without further delay both parties would use this stipulated date to sign the formal agreement for the sale of the carpark at the solicitors' office. 24. In my view, when Mr Ho used the word "completing the sale and purchase of the carpark" he was not using the word in the sense of completion by assignment but rather sale of the carpark by Poko to the defendant. The reference in clause (C)(1) to the date fixed by Poko is for the purpose of fixing the date of the signing of the formal agreement between the plaintiffs and the defendant. Certainly it did not have the effect as suggested by the defendant, namely, the completion of the sale between the plaintiffs and the defendant would be done at the same time of the completion of the sale between the defendant and Poko. 25. Likewise, clause (H) was inserted for the simple purpose of ensuring that if the defendant was not able to purchase the carpark, he would not be required to sell any carpark to the plaintiffs and the provisional agreement would then become void. The additional Clauses (C)(1) and (H) were written by estate agents. Some loose words were used, and they were intended to convey simple meanings. Certainly, clause (H) is not capable of meaning that the provisional agreement would become void in the occurrence of two events, namely, the defendant could not buy the carpark from Poko and that Poko would not allow a change of name for the sale of the carpark. Other matters 26. There are other matters raised in the evidence, such as, in the witness statement of Ms Cheung, para. 9(f), where it was stated that : "it was unknown if Chiu (i.e. the defendant) could eventually buy the carpark from the developer for re-sale of the same to us". In my view, no significant meaning should be attached to the use of words "re-sale" by Ms Cheung. I think all that she meant was that the defendant would first acquire the carpark from Poko, so that he would be in a position to sell it to them. 27. The defendant also mentioned that he was advised by his lawyer that there could not be a sub-sale of the carpark. Clearly there were restrictions imposed in the formal agreement between Poko and the defendant on the carpark. However, such restrictions do not mean that the defendant is not liable to sell the carpark to the plaintiffs. Subsequent discussions between Mr Ho and the defendant 28. These subsequent discussions have no bearing on the construction of the provisional agreement. I will deal with these matters as they were raised in the evidence. The plaintiffs' evidence was that at the end of 1995 or the start of 1996 when Poko had already allowed the defendant the right to use the carpark, the defendant asked Mr Ho whether the plaintiffs would rent the carpark from him. Mr Ho responded that this would not be reasonable because the plaintiffs had already purchased the carpark from him. Ms Cheung also turned down the request. There was another conversation between Mr Ho and the defendant when the defendant told him that since he was no longer an owner of the property in Bayshore Towers, he could not sell the carpark. Mr Ho asked him to return the deposit of $40,000. Thereafter, the defendant informed Mr Ho that Poko was willing to sell the carpark to him, but because he had increased his expenses, he wished to raise the purchase price of the carpark by $50,000 to $580,000. Mr Ho told him that the $30,000 was already intended to cover the expenses that might be incurred by the defendant. However, the defendant insisted on an upward adjustment of the price otherwise he would not sell. Furthermore, he stressed that the provisional agreement had been cancelled, and the sale of the carpark to the plaintiffs would mean a new contract and subject to a new price. Ms Cheung rejected the request and insisted the provisional agreement to be valid. 29. The defendant said that there was an understanding reached between him and Mr Ho on the telephone that if the assignment of the carpark to the defendant by Poko was to be completed within two or three months from the end of September 1995, he would sell the carpark to the plaintiffs at the same price of $530,000. The defendant said that in October 1996, Mr Ho asked him if he would sell the carpark to the plaintiffs at $530,000. He then told Mr Ho that the earlier understanding was that he would do so if the assignment was completed within two or three months from the end of September 1995. Since the assignment was completed one year later, he could not sell the carpark at $530,000 but only at an increased price of $580,000. Mr Ho did not come back to him. He also said that Mr Ho asked him if the plaintiffs could rent the carpark from him. He said he rejected this because the provisional agreement was void. He also denied that Mr Ho had asked for the return of deposit of $40,000. 30. Mr Ho was not able to recollect the dates on which he had conversations with the defendant. He also agreed that there was one occasion in which the defendant told him that his lawyer advised him the sale could not be done by way of confirmor sale. Mr Ho is an impartial witness. Some of his recollections may not be accurate, for example, whether On Hing had asked the defendant for commission for the sale of the Flat 12A, however, all in all, I find him to be an honest witness and I accept his evidence that he in fact had such telephone conversations with the defendant. I reject the defendant's evidence that there was any understanding with Mr Ho on selling the carpark at the same price if the completion was to be carried out within two to three months from September 1995. All these just do not make sense. In my view, the likely event is that the defendant was having second thoughts about selling the carpark to the plaintiffs at such a low price and wished to extract further payment from them. I do not accept his evidence that the reason why the deposit was not immediately refunded to the plaintiffs was because of the so-called understanding. I also reject the argument that the plaintiffs did not immediately ask for the return of the deposit was because of the so-called understanding. Ms Cheung was not a sophisticated person. The reason why no action was taken by the plaintiffs to recover the deposit of $40,000 earlier was because they were waiting for the sale of the carpark from the defendant to them. Defendant in breach 31. In my view, the defendant having successfully acquired the carpark from Poko, was in breach in refusing to sell it to the plaintiffs. Damages 32. Under clause (E), if the defendant refused to sell, he should pay compensation of double the amount of the deposit and the deposit that had been paid had to be returned to the plaintiffs. The deposit of $40,000 was 8% of the purchase price of $500,000. The sum which is double the amount of the deposit would be 16% of the purchase price. Following the analogy of a vendor not being entitled to forfeit deposits exceeding 10%, Mr Lam argued that clause (E) was a penalty which cannot be enforced. Among the cases referred to by Mr Lam was Sung Wai Kiu & Another v. Wong Mei Yin [1997] CPR 358. The more recent authority on the forfeiture of deposit is the Privy Council decision of Union Eagle Ltd v. Golden Achievement Ltd [1997] 1 HKC 173. 33. In my view, a payment of 16% of the purchase price cannot be a genuine pre-estimate of the loss that the plaintiffs had lost. In my view, the plaintiffs are not entitled to rely on this clause. The measure of damage should be the actual loss suffered by the plaintiffs because of the failure by the defendant to sell the carpark to them. The sum of $62,250 now claim by the plaintiffs is the correct measure of damage. Mr Lam submitted that the plaintiffs, apart from producing two licenses issued by the management office dated 27 November 1995 and 9 November 1996 respectively, had not shown that they had made the payment as alleged. Also, it was said that apart from producing an assignment dated 25 February 1997 in which Poko signed the carpark to Ms Cheung for $580,000, there was no evidence that she had paid this sum. 34. The plaintiffs' claim for the $62,250 was set out in the witness statement of Ms Cheung which was agreed to be adopted as her evidence-in-chief. There was no cross-examination of her witness statement. There was no suggestion that the evidence was untrue. In my view, I am entitled to accept her evidence in this regard. Conclusion 35. Accordingly, I shall give judgment to the plaintiffs for the sum of $62,250. Although this figure was mentioned in the Re-Amended Reply filed on 21 January 2000, the Statement of Claim was only amended on the first day of the hearing to include this alternative claim. As a result, the plaintiffs are only entitled to interests on this sum at judgment rate from the date of the judgment until payment. The plaintiffs are entitled to the cost of this action, to be taxed on District Court scale with certificate for counsel. Solicitors' undertaking 36. In view of the amount claimed by the plaintiffs, this case should not have been brought in the High Court. In 1999, the defendant's solicitors had written to the plaintiffs' solicitors requesting them to transfer the case to the District Court. The request was rejected on the ground that the High Court had unlimited jurisdiction to deal with the claim. By so doing, the plaintiffs' solicitor had failed to consider the risk the plaintiffs may be exposed to on costs to be taxed on High Court scale if they lose this case. Even if they win the case, they may not be able to recover fully from the defendant by way of costs, if the costs are to be taxed on District Court scale. Although the defendant's solicitors had very properly requested the plaintiffs to transfer the matter to the District Court, they had not taken the step of applying for a transfer themselves. In so doing, the defendant's position on costs is also at risk. This should not have happened. The only redeeming feature is that both solicitors have now undertaken to charge their respective clients fees on the basis of party and party taxation on the District Court scale.
Representation: Mr Louie Mui, instructed by Messrs Anthony Ho & Co., for the Plaintiffs. Mr Christopher Lam, instructed by Messrs Maurice Lee, Tsang, Ng-Quinn & Tang, for the Defendant |
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