Profit Rich Enterprises Ltd v. Sky Talent Properties Ltd
Read the full judgment text of HCA 9119/1998 on BabelCite. This High Court CFI judgment was delivered on 11 June 2003.
1. On 16 October 1997, the plaintiff as vendor agreed to sell and the defendant as purchaser agreed to purchase the property known as 1058 Canton Road ("the Property") for the sum of HK$19 million. The Provisional Agreement for Sale and Purchase was signed on that day and on 3 November 1997, a formal Sale and Purchase Agreement was signed. Clause 2 of the Agreement provided for payments of the various deposits and also that the balance should be paid on the completion date which was agreed as 30
Cites 1 case
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HCA009119/1998 HCA9119/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.9119 OF 1998 ---------------------
---------------------- Coram: Hon Nguyen J in Court Dates of Hearing: 7-11 and 23 April 2003 Date of Judgment: 11 June 2003 ------------------------ J U D G M E N T ------------------------ The plaintiff's claim 1.On 16 October 1997, the plaintiff as vendor agreed to sell and the defendant as purchaser agreed to purchase the property known as 1058 Canton Road ("the Property") for the sum of HK$19 million. The Provisional Agreement for Sale and Purchase was signed on that day and on 3 November 1997, a formal Sale and Purchase Agreement was signed. Clause 2 of the Agreement provided for payments of the various deposits and also that the balance should be paid on the completion date which was agreed as 30 May 1998 and which was subsequently extended to 1 June 1998 because 30 May 1998 was a public holiday. 2.Clause 18 of the Agreement provides that time shall in every respect be of the essence of the Sale and Purchase Agreement. 3.Clause 19 provides that should the defendant fail to complete the purchase, the plaintiff may forthwith determine the Sale and Purchase Agreement by giving notice of termination in writing to the defendant and the plaintiff shall thereupon be entitled to re-enter the Property and shall be entitled to forfeit the deposit. Upon determination of the Sale and Purchase Agreement, the plaintiff may resell the Property and on such resale if there should be a deficiency in price, that and all reasonable expenses shall be borne by the defendant. 4.The defendant, in breach of the Sale and Purchase Agreement, failed to deliver the balance of the purchase price to the plaintiff on the completion date. By a letter dated 1 June 1998, the plaintiff rescinded the said Sale and Purchase Agreement and forfeited the deposits paid thereunder. The plaintiff was, at all material times, ready and willing to complete the sale and purchase of the Property. The Property was resold on 29 October 1999 and netted a total of $9.63 million. The plaintiff therefore claims against the defendant the following sums :
5.Further or in the alternative, the plaintiff claims against the defendant an indemnity in relation to all liabilities or claims which the plaintiff may suffer or incur as a result of the defendant's wrongful breach. The Defence 6.The Defence relied upon was that on 26 May 1998, the defendant raised requisitions on the title of the Property in respect of some unauthorized structures as particularized in an architect's report dated 18 May 1998. It was averred that the plaintiff did not answer or failed to answer all the said requisitions sufficiently and/or satisfactorily to prove the title of the Property in accordance with the terms of the Sale and Purchase Agreement at a time reasonably before the date of completion. The plaintiff was, therefore, in breach of the Sale and Purchase Agreement and by that breach had prevented the defendant from completing the purchase and the subsequent sale and purchase between the defendant and a sub-purchaser was aborted as a direct consequence. 7.By reason of the above matters the defendant was entitled to rescind and/or cancel the Sale and Purchase Agreement and by a letter dated 1 June 1998 the defendant rescinded and/or cancelled the Sale and Purchase Agreement and demanded for the return of the deposit. The defendant counterclaims for the return of the deposit paid by it to the plaintiff namely :
The defendant also claims the loss of the profit which it could have made on the resale of the Property. The defendant also claims the sum of $1,980,000.00 which was averred to be the sum which the defendant was liable to repay one of its directors, Mr Ng Pit Hing, who had agreed with the sub-purchaser that if the sub-purchase could not be completed, then the defendant would indemnify the sub-purchaser by paying it the sum concerned. The illegal structures 8.On 7 May 1998, a firm of architects was instructed to study the existence of unauthorized structures and alterations at the Property. A site visit was then arranged for that day. The architect's report dated 18 May 1998 sets out the following unauthorized structures :
9.The architect was of the opinion that the aforementioned items were unauthorized buildings works that contravened the provisions of the Buildings Ordinance and Regulations. His opinion was that they were subject to enforcement by the Building Authority by the issuance of orders under the Buildings Ordinance to have the unauthorized structures removed. Defence evidence 10.Mr Ng Pit Hing, a director of the defendant company, gave evidence. He said that a Mr Wong of Bo Hing Property Agency, whom he knew, introduced him to a Mr Cheng and Mr Kwok of Unique Property Consultants Limited and those two introduced the Property to him. Kwok recommended to Ng that the building was good and was worth buying. At the beginning, Kwok represented the plaintiff and persuaded Ng to buy the Property. 11.Prior to signing the Provisional Sale and Purchase Agreement, on 16 October 1997, Ng made two brief visits to the Property on 13 and 14 October 1997. During those visits, he did not go into the building but looked at it from outside and he was able to see a structure on the roof which, in the course of this trial, has been called item A. He also saw a signboard erected outside the building and in the course of this trial, it has been called item D. He was very concerned about these structures but he was assured by Kwok that the plaintiff was a company of repute and the structures were legal and prior approval from the Building Authority had been obtained. He said he believed Kwok and that was the reason why he signed the Provisional Sale and Purchase Agreement. He said no one would have a survey of the building before signing the Sale and Purchase Agreement. He was going to keep the Ground Floor as a long term investment but would sell off the upper floors. Kwok said they were in good condition and Ng believed him. 12.After he signed the agreement and paid the first deposit of $1 million, he said he wanted to inspect the internal part of the building and he then phoned the three persons Kwok, Cheng and Wong to ask them to arrange an inspection. All three of them told him that they had no time and he continued to press them by phoning them. Kwok said he was not free and asked Ng to leave it till later. Sometimes he would say that his boss was not available and he had no keys. Ng said in court that Kwok did not assist him to inspect the property at all until he finally got his solicitors to write to the plaintiff's solicitors in May 1998 to ask for an inspection. He said the three of them disappeared and he could not get in touch with them. After he signed the Sale and Purchase Agreement on 16 October 1997 he could not contact Kwok at all. His mobile phone was never answered. 13.He agreed that he was aware that Kwok as the agent for the transaction would not receive his commission until the formal Sale and Purchase Agreement was signed and he agreed that by not arranging for Ng to inspect the property, Kwok was running the risk that Ng or his company would not sign the formal Sale and Purchase Agreement thereby depriving Kwok of his commission. He said he did ask that the Sale and Purchase Agreement should reflect the fact that the structures were legal but the other side would not allow it and he still signed the Sale and Purchase Agreement because Kwok had told him that the structures were legal. 14.He agreed that if the vendor was willing to demolish the structures, he would purchase the property and he agreed that on 3 November 1997, his solicitors faxed the vendor's solicitors that they wanted to amend the draft Sale and Purchase Agreement by inserting the clause "the vendor undertakes to demolish and remove all unauthorized structures". In the event that clause was not inserted into the formal Sale and Purchase Agreement. 15.The title deeds were delivered to the defendant's solicitors by the plaintiff's solicitors on 15 November 1997. However it was only on 26 May 1998 that the defendant's solicitors wrote to the plaintiff's solicitors asking for documentary evidence to show that the unauthorized structures mentioned in the defendant's architect's report had been approved by the Building Authority. On 28 May 1998, the plaintiff's solicitors wrote back and said that they were surprised by the defendant's solicitors' letter since the defendant had full knowledge of the conditions of the property at all material times including the time when the provisional agreement and the formal agreement was signed and further deposits paid. The defendant's solicitors replied to that letter on 29 May 1998. 16.Ng agreed in his evidence that he did not instruct his solicitors in that reply to say to the plaintiff's solicitors that it was entirely the fault of the plaintiff in not having allowed the defendant to inspect the internal of the Property. He also agreed that he did not tell his solicitors to say in that letter that the agent, Kwok, had assured him, Ng, that the structures were legal and that Ng had made numerous efforts to have the opportunity to inspect the inside of the building. Assessment of Ng's evidence 17.I do not accept Ng's evidence that he was denied by the plaintiff the opportunity to inspect the internal part of the building until 22 May 1998. It seems to me that because of the rise in the property market in October 1997, he, on behalf of his company, was prepared to buy the Property without a careful inspection of the internal of the building. This they did for $19,000,000. When the market began to fall at the end of 1997 and, by May 1998, the property was only worth $11,980,000, the defendant then sought ways to get out of the transaction. They started that process by instructing Mr Pong, an architect, to inspect the property. Mr Pong was able to do that on 7 May 1998 without any apparent difficulty and on 18 May, furnished his report in which he stated there were six illegal structures which he labelled items A to F. It was only on the same day when the defendant company got the architect's report that they instructed their solicitors to request an inspection of the property which they were able to do on 22 May 1998. 18.The defence also called the architect Mr Pong Yuen Cheung who basically agreed that the structures in question could be removed within 60 days. The issues 19.The defendant's requisition was made for the first time on 26 May 1998. The completion was due to take place on 1 June 1998 and since 31 May 1998 was a Sunday, the requisition left the plaintiff with less than five working days to answer it or to try and comply with it. Under clause 13 of the Sale and Purchase Agreement, any requisitions or objections in respect of the title shall be delivered in writing to the vendor's solicitors within seven working days after the date of receipt of the title deeds of the Property, otherwise the same shall be considered as waived and if the purchaser shall make and insist on any objection or requisitions in respect of the title which the vendor is unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with, the vendor was at liberty to give the purchaser not less than five working days' notice in writing to annul the sale, in which case, unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled. The requisition was therefore clearly out of time as agreed between the parties. 20.The defendant relies on the judgment of Deputy Judge Cruden in Giant River Ltd v. Asie Marketing Ltd [1990] 1 HKLR 297 where it was held that a requisition going to the root of the title will not be excluded by a condition purporting to limit the time for making the requisition. In Chiu Kin On v. Henmy International Ltd, HCMP4956/1998, Cheung J (as he then was) said that the Court of Appeal in Hillier v. Tread East Ltd [1993] 1 HKC 285 had clearly stated that even for requisitions which go to the root of the title, the time limit will only not apply if the purchaser cannot discover the defect with due diligence. Does the requisition in this case go to the root of the title? In Mexon Holdings Ltd v. Silver Bay International Ltd [1993] 3 HKC 756, Rogers JA (as he then was) at page 768 said this :
21.In that case, the purchaser's architect was of the view that the Property contravened the Building (Planning) Regulations by failing to comply with the Code of Practice on Provision of Means of Escape since the maximum travel distance from the property to the entrance of the escape staircase exceeded 18 metres. Rogers JA was of the view that the requisitions which were raised did not relate to how the vendor derived its interest to the property. He said that the documents had not been challenged and on the face of the documents which had been provided, there was a clear chain leading back to the base of the title. He then said (at page 768) :
Rogers JA then held that the objection did not go to the root of title. Nazareth VP was of the view that the solution proffered which involved incurring expenditure to reduce the distance to the escape staircase would not go to the root of title. The other solution of the purchaser surrendering the use of about 13% of the usable area of the property would constitute a blot on the title, but not to the root or even the chain of title. Nazareth VP then held that the purchaser was not entitled to raise the requisition. Mayo JA (as he then was) was of the view that the non-compliance with fire regulations constituted an impairment of the implied covenant for quiet enjoyment of the property but it could by no means be said that the defect went to the root of title. He was of the view that the defect of title in that case was of a peripheral nature and the vendor was justified in declining to entertain the requisition. The Court of Final Appeal in the same case was also of the view that the so-called defect went no where near the root of title. 22.The unauthorized structures in the present case could all have been removed within 60 days and this was agreed by both the architects retained by the parties. On 2 July 2002 when the plaintiff's architect Mr Norman Yiu visited the site, he noticed that items A and C had already been removed. I find that the other items could have been removed if the requisition had been made earlier and the plaintiff had sufficient time to remove them. These unauthorized structures were structures which enlarged the useable area of the Property, for instance, items A, B, E and F, and were possibly breaches of the Buildings Ordinance which might have attracted enforcement action by the Building Authority. Nevertheless, I am of the view that none of these structures went anywhere near affecting the plaintiff's title to the Property nor its right to give a good title to the defendant. I am, therefore, of the view that none of these structures went to the root of the title. Furthermore, if the defendant in fact wanted to inspect the Property before completion, my view is that that could have been arranged easily. Once an internal inspection of the Property was made, then items E and F could have been discovered. I do not accept Mr Ng's evidence that the agents had made a misrepresentation to him that all the structures had been authorized by the Building Authority. If there was any doubt about the matter, the defendant could easily have got their solicitors to write to the Building Authority to confirm that the structures had been authorized. There was after all a period of seven and a half months between the signing of the Sale and Purchase Agreement and the completion date. 23.Mr Mumford, SC for the defendant submits that the unauthorized structures were all latent defects in the sense that one could not tell whether they had been authorized and none of them were shown in the plans. Counsel submits that the plaintiff was under a duty to disclose these latent defects and the plaintiff must have known of them or ought to have known because it must have had the building surveyed at some stage when it bought it. I do not agree with that submission. I agree with the submission by Mr Chow, appearing for the plaintiff, that there is no evidence before the court to suggest that the plaintiff must necessarily have known or ought to have known about such unauthorized structures but had chosen not to disclose them. There is no evidence when these structures were built and by whom. It is just as possible that the structures were built by the tenants occupying the various floors and the plaintiff even though it was the landlord was unaware of some of these structures. I respectfully agree with the view by Chung J in Billion Profit Enterprises Ltd v. Rise Path Investments Ltd & Others, HCA711/1999 when he quoted Barnsley's Conveyancing Law and Practice (1996), 4th Ed., pages 153-4 which said :
and then Chung J said (at page 6) :
Defendant watching the market 24.Having heard the evidence, my view is that it is quite clear that the defendant company was watching the market after it entered into the formal Sale and Purchase Agreement. It is an incontrovertible fact that after the formal Sale and Purchase Agreement was signed in November 1997, the property market in Hong Kong began to go downwards and by the completion date at the end of May 1998, the prices of all properties had fallen dramatically. The evidence was that by May 1998 the Property in question had fallen from its value of $16.25 million as at November 1997 to $11.98 million. The defendant then made a last ditch effort to try and get out of the transaction by, as stated above, firstly, instructing their architect to inspect the Property in May 1998. The Courts' tolerance of such conduct 25.The Court of Final Appeal in Mexon (2000) 3 HKCFAR 110 was particularly critical of the attempt by the purchaser to get out of that transaction and at page 117, Litton PJ said :
Bokhary PJ was just as scathing in his remarks at page 119 :
26.Even before the judgment of the Court of Final Appeal in Mexon in April 2000, Stone J in Wong Man Kit Raymond v. Chan Nam Fan, HCMP4391/1997, in May 1998, put the burden squarely on the shoulders of the purchaser to satisfy the court that there is a proper case for disregarding the contractual time limit when he said :
Further on in the judgment he said :
27.In City Chain Properties Ltd v. Speedy Port Ltd, HCA2221/1998, on 7 November 2001, Sakhrani J at paragraph 73 page 14 expressly adopted the quoted passage by Stone J in Wong Man Kit (supra). Further, the learned judge was clearly of the view that the onus was on the purchaser to explain its lateness. He said :
Conclusions 28.In the light of everything said above, I find as follows :
29.The defendant submits that the resales took place far too late and no one gave evidence for the plaintiff so it is not possible to establish whether the sales were at arm's length. The defendant submits that the right to resell should have been exercised within a reasonable time as the contract itself provides that time is of the essence. The defendant therefore submits that the comparison should be between the contract price and the May 1998 valuation price. The plaintiff's reply to that is that the plaintiff's right to claim the difference in price on the resale is based on the express terms of the contract. It is therefore for the defendant to plead and show why the plaintiff should be deprived of their contractual right. I agree with the plaintiff's submission. The duty to mitigate was never pleaded by the defence. In Ho Lai Chuen Cadia trading as Resolution Software Consultants v. Xerox (Hong Kong) Ltd, CACV299/2002, 7 March 2003, the Court of Appeal ruled at paragraph 6 as follows :
30.This issue was never pleaded by the defendant nor was there any proof that the resale could have taken place in 1998. I therefore give judgment to the plaintiff in the sum of $6.52 million which is the difference between the original sale price minus the sum realised on the resale, that is $9.63 million, minus the $2.85 million deposit paid to the plaintiff by 5 January 1998. The plaintiff is entitled to interest at 1% above prime rate on the $9.63 million from 1 June 1998 to 29 October 1999 and I give judgment accordingly. There will also be interest at 1% above prime rate on $6.52 million from 1 June 1998 until date of judgment and thereafter at judgment rate until payment and I give judgment accordingly. 31.There was no evidence from the plaintiff on what expenses were incurred on the resale and therefore the plaintiff is not entitled to judgment for any of those sums. The plaintiff is not entitled to the claims in paragraphs 2, 3 and 5 of the Re-amended Statement of Claim. There will be costs to the plaintiff to be taxed if not agreed. 32.By reason of what I have already said the defendant's counterclaims are dismissed with costs to be taxed.
Representation: Mr Kenneth Chow, instructed by Messrs Y.C. Lee, Pang & Kwok, for the Plaintiff Mr E.C. Mumford, SC instructed by Messrs K.C. Tsang & Co., for the Defendant |
Cases cited in this judgment