Tak Cheong Electronics (Holdings) Co Ltd v. Sun Dexiang

DCCJ 2483/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2483 OF 2005

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BETWEEN

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Coram : Deputy District Judge J.Ko in Chambers

Dates of Hearing : 26^th October 2005

Date of Handing Down Judgment : 29^th November 2005

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J U D G M E N T

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1.The Plaintiff (as the purchaser) and the Defendant (as the vendor) entered into a provisional agreement dated 31^st January 2005 (“the Provisional Agreement”) for the sale and purchase of the property known as Flat F, 11^th Floor, Sunrise Villa, No.33 Sung On Street, Kowloon (“the Property”). 

2.This action was brought by the Plaintiff for rescission of the Provisional Agreement and other consequential reliefs.  The Plaintiff now applies for summary judgment pursuant to Order 86 of the Rules of the District Court.

Background

3.Most of the facts giving rise to this action are not in dispute and I set them out in chronological order as follows.

4.At all material times, there was an agreement made on 24^th January 2005 and between Soo Yuen Cheong (as vendor) and the Defendant (as purchaser) for the sale and purchase of the Property (“the Head Agreement”).

5.On 31^st January 2005, the parties entered into the Provisional Agreement in the Chinese language.  The material terms of the agreement may be given as follows:

“	2.	該物業之成交價為港幣 2,380,000 貳佰叁拾捌萬元正
		(a)	於簽訂本合約之同時即付臨時訂金 100,000 拾萬元正
		(b)	於簽署正式買賣合約之時或以前，即 16-2-2005 加付訂金港幣 138,000 拾叁萬捌仟元正
		(c)	…
		(d)	於完成交易之時或以前，即 24-4-2005 （中午十二時） 並在賣方之代表律師行付清樓價餘款港幣 2,142,000 貳佰壹拾肆萬貳仟元正
		*上述(a)及(b)及(c)條文所列之訂金，須由賣方之律師行以保管人身份加以保管，並在確保該樓價餘款足夠清還現存之按揭及債務時，方可將該訂金轉交賣方。
	3.	該物業是以免除所有負擔或債項之情況下售於買方，買方之提名人或其承讓人。
	4.	…
	5.	賣方是以確認人身份售出該物業。
	6.	…
	7.	如買方未能履行本合約之條款完成買賣，賣方除將買方已付之臨時訂金沒收外，並有權將該物業再行售予他人，惟賣方不可再為此向買方追究任何責任或要求任何賠償或特定履行。
	8.	如賣方在收取臨時訂金後，不依本合約之條款完成買賣則賣方除須退還買方所付之臨時訂金全數外，並須以同等數目之金額賠償予買方。另賣方須負責繳付/退還本合約之印花稅（如有），惟買方不得再向賣方追究任何責任，包括其他賠償或特定履行。
		…”

6.Pursuant to the Provisional Agreement, the Plaintiff paid the initial deposit of $100,000 on 31^st January 2005 and the further deposit of $138,000 on 16^th February 2005.

7.On 14^th February 2005, the Defendant’s solicitors sent the draft formal sale and purchase agreement to the Plaintiff’s solicitors together with a copy of the Head Agreement.

8.On 15^th February 2005, the Defendant's solicitors delivered the relevant title deeds and documents to the Plaintiff’s solicitors together with a certified copy of the Head Agreement.

9.On 16^th February 2005, the Plaintiff’s solicitors returned to the Defendant’s solicitors the draft formal sale and purchase agreement with proposed amendments.  It is common ground that at the end of the day the parties have not entered into any formal sale and purchase agreement and the Provisional Agreement remains valid and binding.

10.By a letter dated 23^rd February 2005, the Plaintiffs' solicitors raised, inter alia, the following requisition of title (“the Requisition”).  For the purpose of this application, the parties have agreed that only the Requisition is relevant.

“5.

According to our search at the Official Receiver’s Officer, Soo Yuen Cheong, the head vendor, has entered into a Voluntary Arrangement with the creditors with the approval of the Court.  According to the Bankruptcy Ordinance, Soo Yuen Cheong’s asset, which includes the Property vested in the Nominee Ms. Cheung Kit Yim Catherine.  Please provide us with evidence that the Nominee’s consent has been obtained for the sale of the Property and that it is not in breach of the voluntary arrangement with the creditors.  Furthermore we are of the view that even if the Nominee has consented, she is required to join in as a party in the Assignment.”

11.By a letter dated 21^st April 2005, the Plaintiff’s solicitors, inter alia, reminded the Defendant’s solicitors that completion would take place on or before noon on 24^th April 2005 and put on record that the Requisition was still outstanding.

12.The Defendant's solicitors gave the following reply to the Requisition in their letter dated 22^nd April 2005:

“We enclose a copy of letter from the head vendor’s IVA solicitors Messrs. Lee Shing Fung & Co. dated 14^th April 2005 for your perusal, contents of which are self-explanatory.”

The Defendant's solicitors further enclosed a copy of the said letter from Messrs. Lee Shing Fung & Co. together with a 2-page document.

13.The said letter from Messrs. Lee Shing Fung & Co., which was addressed to Messrs. Hui & Lam, is in the following terms:

“Re:	Flat F on 11/F., Sunrise Villa, No.33 Sung On Street, Kowloon
	HCBI No.413/2004
	SOO YUEN CHEONG (蘇遠昌), HKID No….
…
Pursuant to paragraph 4.17 of the proposal of Mr. SOO, his nominee is not a trustee in relation to the voluntary arrangement and no assets will vest in his nominee.
We enclose herewith a complete copy of the said proposal for your perusal.
…”

It is common ground that Messrs. Hui & Lam were the solicitors acting for Mr. Soo in relation to the sale and purchase of the Property under the Head Agreement.

14.Further queries were raised by the Plaintiff’s solicitors by their letter dated 23^rd April 2005 including the following:

“	5.	With respect we do not consider the document you have supplied to us answered the requisition:
		a.	Messrs. Lee Shing & Fung did not state they were the IVA solicitors for the head vendor.
		b.	You have only sent us pages 11 & 12 of the proposal which did not touch on the Property.  Please let us have the whole proposal.
		c.	There is not evidence that this proposal has been agreed upon by the creditors and approved by the court.
		d.	Most important of all it was stated in paragraph 4.17 that ‘If appointed as Nominees, Wu Shek Chun, Wilfred and Yu Tak Yee, Beryl will exercise the functions set out in the Ordinance and Rules … No assets well (sic.) vest in Wu Shek Chun, Wilfred and Yu Tak Yee, Beryl…’ However according to the record in the Official Receiver’s Office, the Nominee is Ms. Cheung Kit Yim Catherine and not those two gentlemen.  It appears that the proposal is not the one approved by court.”

15.The Defendant’s solicitors replied by their letter dated 23^rd April 2005 that:

“We refer to your letter … dated 23^rd April 2005, we should have reasonable time to answer your requisitions and we shall answer you shortly.

Please note that 24^th April 2005 is Sunday, the completion date for the sale and purchase of the property should be 25^th April 2005.”

The said letter was sent by facsimile transmission to the Plaintiff’s solicitors at 5 pm on 23^rd April 2005, which is a Saturday.

16.Completion did not take place at noon on 24^th April 2005, as scheduled under the Provisional Agreement.

17.On 25^th April 2005, the Defendant’s solicitors gave a further reply as follows:

“We refer to your letter dated 23^rd April 2005 and would like to reply as follows:-

…

5. We enclose herewith the Certificate of Non-Compliance dated 22^nd April 2005, the voluntary arrangement has been terminated.  Therefore, the Head Vendor is no longer bound by the proposal.

We believe our client has proved a good title to the Property and shall be grateful if you could let us have the draft assignment and undertaking letter for our approval.”

18.The Certificate of Non-Compliance dated 22^nd April 2005 enclosed in the said letteris in the following terms:

“WHEREAS the proposal for the Voluntary Arrangement (“the Voluntary Arrangement”) of the Debtor was approved by the requisite majority of the creditors of the Debtor at their meeting to consider the same.

WHEREAS upon the approval for the Voluntary Arrangement, I, Catherine Cheung Kit Yim of Catherine Cheung & Co., was appointed as the nominee for the Voluntary Arrangement.

…

I, as the nominee for the Voluntary Arrangement, hereby declare and certify that:-

The Debtor, SOO YUEN CHEONG, has failed to comply with his obligations under the Voluntary Arrangement pursuant to Paragraph 15 of the proposal and the Voluntary Arrangement is terminated on the date hereof.

Dated the 22^nd April 2005.

Signed:  (Signed)

CHEUNG Kit Yim, Catherine

Nominee for the Voluntary Arrangement”

19.By their letter dated 25^th April 2005, the Plaintiff’s solicitors alleged that the Defendant had repudiated the Provisional Agreement by failing and/or refusing to prove, show and give a good title to the Property in that the requisitions raised (including the Requisition) had not been answered satisfactorily on or before completion.  The Plaintiff accepted the Defendant’s repudiation and demanded for the return of the initial and further deposits.

20.By their letter dated 26^th April 2005, the Defendant’s solicitors contended that they had not been given sufficient and reasonable time to answer the queries raised on 23^rd April 2005.  They also alleged that all requisitions including the Requisition had been answered satisfactorily and sufficiently and that the Defendant had proved good title.  They alleged that the Plaintiff had repudiated the Provisional Agreement and purported to accept such repudiation and forfeited the initial and further deposits.

The approach to the present application

21.The parties are not in dispute about the test to be applied.  It is for the Defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the action: see Order 86, rule 3(1).

The defences

22.According to Mr. Ching (counsel for the Defendant) the Defendant is relying on the following defences in opposing the Plaintiff’s application:

(a)	The Requisition (raised in the Plaintiff’s solicitors’ letter dated 23rd February 2005) has been satisfactorily answered by the Defendant’s solicitors’ letter dated 22nd April 2005.
(b)	The Plaintiff’s further queries concerning the Requisition (raised in the Plaintiff’s solicitors’ letter dated 23rd April 2005) constitute “new” requisitions for which the Defendant should have been given a reasonable time to reply and that the completion date should therefore be postponed.  In any event, such “new” requisitions have been satisfactorily answered by the Defendant’s solicitors’ letter dated 25th April 2005.

23.Notwithstanding what is stated in his written skeleton argument, Mr. Ching confirms that he does not take issue with the following for the purpose of this application:

(a)	Under the Provisional Agreement, the completion date was set at 12 noon on 24th April 2005 and that time was of the essence of the agreement: see Wong Wai Chi Ann v. Cheung Kwok Fung Wilson [1996] 3 HKC 287.
(b)	It was an implied term of the Provisional Agreement that the Defendant as the vendor had an obligation to show good title before the completion date and to answer requisitions within a reasonable time: see Active Keen Industries Ltd v. Fok Chi Keong [1994] 2 HKC 67.

24.It is further conceded by Mr. Ching and there can be no doubt that the Requisition was reasonably raised.  The Defendant’s title to the Property derived from Mr. Soo.  Based on the information obtained from the Official Receiver’s Office, Mr. Cheung (solicitor representing the Plaintiff) submits that there could only be two alternatives.  First, the Official Receiver was wrong and Mr. Soo had not entered into voluntary arrangement.  Alternatively, Mr. Soo had indeed entered into voluntary arrangement and further enquiry would need to be made as to the condition (if any) imposed by the proposal for voluntary arrangement on Mr. Soo’s powerto dispose of the Property.  Hence, the Requisition raised by the Plaintiff was both reasonable and justified.

25.Mr. Ching does not dispute the fact that Mr. Soo had entered into voluntary arrangement.  He, however, interpreted the Requisition to raise only one question, namely:

“Please provide us with evidence that the Nominee’s consent has been obtained for the sale of the Property and that it is not in breach of the voluntary arrangement with the creditors.”

26.Mr. Ching submits that the Defendant’s answer dated 22^nd April 2005 (enclosing the letter dated 14^th April 2005 from Messrs. Lee Shing Fung & Co. in which it was stated that “no assets will vest in [Mr. Soo]’s nomiee”) satisfactorily answered the Requisition.

27.In reply, Mr. Cheung complaints that the Defendant’s answer is unsatisfactory in the following respects:

(a)	Despite the allegation in Messrs. Lee Shing Fung & Co.’s letter that a complete copy of Mr. Soo’s proposal for voluntary arrangement had been enclosed, only 2 pages of the alleged proposal was provided by the Defendant to the Plaintiff.
(b)	It is not clear whether Messrs. Lee Shing Fung & Co. was acting for Mr. Soo in his voluntary arrangement.
(c)	It is not clear from the 2 pages provided whether the alleged proposal relate to Mr. Soo.
(d)	It is not clear whether the alleged proposal had been agreed by the creditors and approved by court.
(e)	It appears from the 2 pages of the proposal provided that the nominees for Mr. Soo’s voluntary arrangement were 2 gentlemen.  However, the nominee should be one Ms. Cheung, according to the information obtained from the Official Receiver’s Office.

28.It is helpful at this juncture to be reminded of the advice given by Litton JA in Active Keen Industries Ltd v. Fok Chi Keong [1994] 2 HKC 67 at 78I-79F on how to show good title in a conveyaning transaction:

“Obviously, if a purchaser raises a substantial objection as to the vendor's title and there are facts within the vendor's knowledge which, if revealed, might meet the objection, and the vendor chooses to withhold that from the purchaser, the vendor clearly cannot, on the day fixed for completion, turn round and say to the purchaser: ‘Now I will both show you a good title and make you good title; you pay the balance of the purchase price today or I will rescind.’ The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion.

But assume the objection to have no substance. In such a case, as Godfrey J. remarked, this presents considerable difficulties. Is it enough for the vendor to say: ‘there is no substance in the purchaser's objection’? The judge answered this question as follows:

‘If there is nothing the vendor can usefully add, I would hold that it is enough. Certainly, a sufficient answer to the purchaser's objection would have been this: 'You will see from the Deed of Mutual Covenant dated 21 March 1964, and from the Assignment to the vendor's predecessor in title dated 16 July 1964, that the building of which this property forms part was laid out in its present arrangement some 28 years ago. The Building Authority is aware of the position and has raised no threat of enforcement proceedings. In the premises, the purchaser's objection is without substance.’

In my judgment the judge's approach must in principle be correct. If the matter was self-evident, the purchaser's solicitor cannot insist upon a fuller reply. But the vendor's solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed. A requisition as to title is not an occasion for the parties' solicitors to bandy propositions of law: each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: although, obviously, if one party can persuade the other to his own point of view on the law, so much the better.”

29.In my view, the Plaintiff’s solicitors have raised a substantial objection by way of the Requisition.  However, the Defendant’s solicitors have failed to provide a satisfactory answer.  I accept Mr. Cheung’s submission that the answer provided in the letter dated 22^nd April 2005 (including the enclosures) had created more doubt than meeting the query.  What’s more, the Defendant had apparently not acted with total candour so that the Plaintiff could be reasonably certain that there were no facts and material relevant to the Requisition known to the Defendant which had not been disclosed.

30.In fact, it is now confirmed by the Certificate of Non-Compliance enclosed in the Defendant’s solicitor’s letter dated 25^th April 2005 that what the Defendant’s solicitors asserted in their letter dated 22^nd April 2005 cannot be correct.

31.So on the first defence raised by the Defendant, I find that the Requisition raised by the Plaintiff had not been answered satisfactorily.  Consequently, the Defendant had not discharged his contractual obligation to show good title at the time scheduled for completion.

32.Mr. Ching agrees that I need not consider the second line of defence if I rule against the Defendant in the first line of defence.

33.Had I gone on to consider the second line of defence, I would have found that the further queries raised in the Plaintiff’s solicitors letter dated 23^rd April 2005 do not constitute new requisitions but are follow-up questions concerning the Requisition, which were prompted by the Defendant’s answer dated 22^nd April 2005.

34.In any event, I consider it was the Defendant’s own making to put herself in such a time constraint by replying the Requisition (raised on 23^rd February 2005) as late as on 22^nd April 2005 – less than 2 days before the completion date of 25^th April 2005.  Time being of the essence of the Provisional Agreement, the Defendant could not force the Plaintiff into postponing the completion date just because the Defendant needed further time to show good title.  Mr. Ching produces no authority to support his contention that the Defendant should have been given a reasonable time to reply and that the completion date should therefore be postponed.  On the contrary, according to the judgment of Litton JA in Active Keen quoted above, it was the purchaser (i.e. the Plaintiff in this case) who should be given reasonable time to consider the title of the vendor (i.e. the Defendant) and his own position and the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion.

Conclusion and orders

35.For the above reasons, I grant judgment in favour of the Plaintiff against the Defendant.  There is a draft Minutes of Order attached to the summons.  Mr. Ching agrees that the terms of the draft would be appropriate should I rule in favour of the Plaintiff.  I therefore make an order in terms of paragraphs 1, 2, 4 and 5 of the draft Minutes of Order.

36.I further make a costs order nisi that the costs of this action including the costs of this application and all reserved costs be to the Plaintiff, to be taxed if not agreed.

Mr. C. W. CHEUNG of Messrs. Tony Kan & Co. for the Plaintiff.

Mr. CHING Wan Fung instructed by Messrs. Alan Ho & Co. for Defendant.