Ng Cheuk Kwan and Another v. Long Green Ltd

DCCJ 5359/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5359 OF 2005

--------------------

BETWEEN

----------------------------------

Coram:  Deputy District Judge R. Cheung in Chambers (open to public)

Date of Hearing:  9^th March 2007

Date of Handing down Judgment:  3^rd April 2007

_________________

JUDGMENT

_______________

1.The 1st and 2nd named Plaintiffs ("the Plaintiffs") made two applications by their summons filed on 27 October 2006.  The Defendant contested the two applications. Both parties are legally represented.

2.The first application is for Judgment against the Defendant. At the hearing, Counsel for the Plaintiffs unequivocally stated that the first application is made pursuant to Order 14 and Order 14A of the Rules of District Court ("the first application").

3.The second application is for the dismissal of the Defendant's Counterclaim.  Counsel for the Plaintiffs unequivocally stated that the second application is made pursuant to Order 18 Rule 19(1)(a), (b) and (d) of the Rules of District Court.  In other words, Order 18 Rule 19(1)(c) is not engaged, nor is Order 14A.

4.Both sides have filed Affirmations.  There is no material conflict between the version of facts asserted by the Plaintiffs and that by the Defendant.  Counsel for the Plaintiff however contended that certain facts asserted by the Defendant are inherently unbelievable.

5.The background is as follows.

Tenanted property

6.The Plaintiffs are at all material times co-owners (as joint tenants) of the property known as Flat B on the 13th Floor of Block 1 of Jubilee Garden at Shatin (“the subject property”).  This is not in dispute.

7.By a Tenancy Agreement in Chinese dated 16 August 2004 ("the Tenancy Agreement"), the Plaintiffs leased the subject property to a tenant for a term of 2 years from 1 September 2004 to 31 August 2006. The tenant paid the Plaintiffs a deposit of $11,000 which is the equivalent of two months' rent. This is not in dispute.

Prior to the Provisional Agreement for Sale & Purchase

8.In early 2005, the Defendant engaged an estate agent Midland Realty to look for properties and one Mr. Chiu Kam Cheong ("Mr. Chiu") of Midland Realty took the Defendant to view the subject property.  The Defendant was aware that the subject property was tenanted at the time of inspection.  This is not in dispute.

9.The Defendant alleged that Mr. Chiu had on behalf of the Plaintiffs told him that (1) the tenancy would come to an end on 1 October 2005 and (2) the tenant had informed the Plaintiffs that she did not intend to lease the subject property any further upon the expiration of the tenancy on 1 October 2005, and (3) the tenant would definitely move out of the subject property from 1 October 2005.

10.The Defendant alleged that there was an oral agreement between the Plaintiffs and the Defendant that the subject property would be sold to the Defendant and that completion was to take place on 1 October 2005.

11.The Defendant alleged that he then found a sub-purchaser of the subject property who needed more time up to 15 October 2005 to make financial arrangements for the purchase.

12.The Defendant alleged that on 24 April 2005, he told Mr. Chiu that there would be a sub-sale to the end purchaser and a request was made to postpone the completion date to 15 October 2005.  The Plaintiffs said that it was Mr. Chiu who suggested the completion date of 15 October 2005 and they had agreed to it.

The Provisional Agreement for Sale & Purchase

13.On 24 April 2005, a Provisional Agreement for Sale & Purchase in respect of the subject property was executed by the Plaintiffs and the Defendant (“the Provisional Agreement”).  This is not in dispute.

14.The Plaintiffs in their Affirmation in Reply said that they had passed the Tenancy Agreement to Mr. Chiu some time before the signing of the Provisional Agreement.

15.Clause 2(d) of the Provisional Agreement provides for the completion of the sale and purchase on 15 October 2005.  The original words “1 October 2005” was deleted.

16.Clause 18 of the Provisional Agreement is written in Chinese. I consider that it should be translated as follows:

“18.   The contract price includes the tenancy agreement, but if the tenant is to before the delivery of vacant possession, that is (1^st October 2005) move out, the Flat can be sold with vacant possession to the purchaser.”

The Formal Agreement for Sale & Purchase

17.On 20 May 2005, the Plaintiffs and the Defendant entered into a Formal Agreement for the Sale & Purchase of the subject property (“the Formal Agreement”).

18.The following are the more salient features of the Formal Agreement.

19.Clause 1 of the Formal Agreement provides as follows:

“1.    The Vendor will sell and the Purchaser will purchase ALL THOSE premises more particularly described in the First Schedule hereto (“the said Premises”) and the appurtenances thereto and all the estate right title interest premises claim and demand whatsoever of the Vendor therein and thereto subject to and with the benefit of the Government Grant and the term (if any) created thereby and with the right of renewal (if any) thereby granted and Subject to and with the benefit of the Deed of Mutual Covenant and Instruments and Matters (if any) referred to the Third Schedule hereto so far as the same relate to the said Premises.”

20.The First Schedule of the Formal Agreement sets out the following:

“	THE FIRST SCHEDULE

ALL THOSE 580 equal undivided 2,000,000^th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as SHA TIN TOWN LOT NO. 87  And of and in the messuages erections and buildings thereon now known as “JUBILEE GARDEN （銀禧花園）” (“the said Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT FLAT B on the 13^TH FLOOR BLOCK 1 of the said Building.”

21.The Third Schedule of the Formal Agreement sets out the following:

“	THE THIRD SCHEDULE

Deed of Mutual Covenant Memorial No. ST314896.”

22.Clause 3(a) of the Formal Agreement provides as follows:

“3(a).    The Purchase shall be completed at the offices of Messrs. T.L. Ip & Company, Solicitors at Room 2507-8, 25^th Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong on or before the 15^th day of OCTOBER 2005 (hereinafter called “the Completion Date”) between the hours of 9:30 a.m. and 5:00 p.m. if the date falls on a weekday and between the hours of 9:30 a.m. and 12:30 p.m. if the date falls on a Saturday when the balance of the Purchase Price shall be fully paid.”

23.Clause 4 of the Formal Agreement provides as follows:

“4.        On the payment of the residue of the Purchase Price (or where the parties have agreed on any applicable undertakings following such payment as aforesaid and in compliance with the applicable undertakings) the Vendor will execute a proper assignment or assignments of the said Premises to the Purchaser or his nominee or nominees or sub-purchaser subject as hereinafter appears but otherwise free form incumbencies.”

24.Clause 5 of the Formal Agreement provides as follows:

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

25.Clause 10 of the Formal Agreement provides as follows:

“10.     If the Purchaser shall (other than due to the default of the Vendor) fail to complete the purchase in accordance with the terms and conditions of this Agreement all deposit money paid hereunder shall be absolutely forfeited to the Vendor who shall be at liberty if the Vendor sees fit without being obliged to tender to the Purchaser an assignment to rescind this Agreement and to retain the Premises or any part or parts thereof or to resell the same either as a whole or in parts and either by public auction or private contract or partly by the one and partly by the other and subject to such conditions and stipulations as to title or otherwise as the Vendor may think fit.  This Clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor’s rights hereunder or otherwise.  On the exercise of the Vendor’s right of rescission hereunder the Vendor shall have the right, if this Agreement shall have been registered in the Land Registry to register at the Land Registry an instrument signed by the Vendor alone to rescind the sale of the said Premises.  This Clause shall not prevent the Vendor recovering in addition to liquidated damages, representing interest paid or lost by him by reason of the Purchaser’s failure.”

26.Clause 15(a) of the Formal Agreement provides as follows:

“15(a).     The Purchaser acknowledge and confirms that the said Premises is subject to an tenancy agreement dated 16^th August 2004 (“the said tenancy agreement”).  The parties hereby agree that if the tenant of the said tenancy agreement moved out on or before 1^st October 2005 (“the Expiry Date”) from the said Premises and the said tenancy agreement shall be terminated on or before the Expiry Date, vacant possession of the said Premises shall be delivered to the Purchaser on completion and the sub-clauses (b) to (c) of this Clause shall not apply.”

27.Clause 15(b) of the Formal Agreement provides as follows:

“15(b).       If the said Premises is sold subject to and with the benefit of the said tenancy agreement, the Vendor shall, on completion of the sale and purchase herein, account to the Purchaser the rental deposit for the sum of HK$11,000.00 (“the Rental Deposit”) which are being held by the Head Vendor in his capacity as the landlord of the said Premises Provided that the Purchaser shall give to the tenant named in the said tenancy agreement an acknowledgement in writing of the amount of the Rental Deposit so received.”

28.Clause 15(c) of the Formal Agreement provides as follows:

“15(c).       Upon receipt of the Rental Deposit pursuant to Sub clause (b) hereof, the Purchaser shall as the new landlord account to the tenant named in the said tenancy agreement the Rental Deposits at the expiration or sooner determination of the said tenancy agreement and shall keep the Vendor full and effectually indemnified against subsequent claim by the said tenant for the refund of the Rental Deposits.  Provided that the Purchaser shall undertake on completion give an Indemnity to the Vendor.”

29.Clause 17 of the Formal Agreement provides as follows:

“17.    This Agreement supersedes all previous agreements whether in writing or oral or implied between the parties hereto.”

30.Clause 23 of the Formal Agreement provides as follows:

“23.    The said Premises is sold together with the decorations, fixtures, fittings and furnishing now in or about the said Premises as set out in the Fourth Schedule hereto (collectively “the said furniture and fixture”).  The Vendor warrants with the Purchaser that he is the beneficial owner of the said furniture and fixture and will deliver the same on completion to the Purchaser free from any lien and charge.  For the avoidance of doubt, the failure by the Vendor to deliver the said furniture and fixture or any part thereof to the Purchaser shall not entitle the Purchaser to terminate or rescind this Agreement who shall be obliged to complete the purchase in accordance with the provisions of this Agreement.  The remedy available to the Purchaser shall be a claim for damages only.”

31.The Fourth Schedule of the Formal Agreement sets out its contents in Chinese. I consider that it should be translated as follows:

“	THE FOURTH SCHEDULE

The contract price includes the tenancy agreement, but if the tenant is to before the delivery of vacant possession, that is (1^st October 2005) move out, the Flat can be sold with vacant possession to the purchaser.”

32.Clause 24 of the Formal Agreement provides as follows:

“24.    The Vendor shall hereby warrants and declare that there is no person(s) other than the Vendor who is occupying the said Premises and having interest whatsoever whether legal or equitable in the said Premises.  The Vendor hereby further declares and confirm that the Vendor has the absolute right and interest in the said Premises and the said Premises were purchased with the Vendor’s own monies and the mortgage loan was repaid by the Vendor’s own monies.  In the event of any third party claim on the said Premises, whether legal or equitable, the Vendor shall forthwith return the money paid herein to the Purchaser and without prejudice to the Purchaser’s right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor’s failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution.  This clause shall survive completion of the sale and purchase herein.”

33.Clause 26 of the Formal Agreement provides as follows:

“26.    This Agreement was preceded by an unwritten sale agreement or agreement/provisional agreement for sale and purchase made between the parties hereto and on the same terms dated the 24^th day of April 2005.”

34.Clause 32 of the Formal Agreement provides as follows:

“32.    IT IS HEREBY AGREED that all the covenants and conditions referred to in Part A of the Second Schedule to the Conveyancing and Property Ordinance Cap. 219 shall be applied to and conditions which have already been agreed between the parties hereto.  In case if there are any conflicts between the terms and in the said Agreement and the covenants in this Agreement shall prevail.”

Solicitors & Estate Agent

35.During the conveyancing process, at all material times the solicitors Messrs. T.L. Ip & Company (“TLI”) acted for the Plaintiffs and the solicitors Messrs. Tam & Partners (“TP”) acted for the Defendant.

36.In his Affirmation, the Defendant said that at all material times he never had any direct contact with the Plaintiffs.  All communications between the Plaintiffs and the Defendant were made through Mr. Chiu.  This is essentially not in dispute although the Plaintiffs in their Affirmation in Reply said that in early May 2005, they had contact with a representative of the Defendant who telephoned the 1st named Plaintiff to discuss the draft indemnity (see Clause 15(c) of the Formal Agreement) in relation to the above tenancy, about which there was disagreement between TLI and TP.

The fax in early October 2005

37.In early October 2005, the Defendant received a fax from Mr. Chiu.  The fax appeared to be a copy of an email sent by the tenant to the 2nd named Plaintiff on 1 October 2005.  The email purports to be a notice to the Plaintiffs for the termination of the abovementioned tenancy.  It also asked the Plaintiffs to deduct the rent payable for the month of October 2005 from the rental deposit held by them.  It appears to have been sent by the Plaintiffs to Mr. Chiu who had in turn faxed the same to the Defendant.  The contents of the fax are in Chinese. I consider that it should be translated as follows:

"This is a letter for giving formal notice to terminate the tenancy agreement. Please deduct the rent for October from our 2 months' deposit. When the time comes only one month's balance of the deposit needs to be refunded to us. I have called you. Perhaps you were out and not yet back. I would call you again."

The apportionment account

38.On 13 October 2005, TLI wrote to TP enclosing an apportionment account.  The apportionment account shows that the Plaintiffs offered to pay to the Defendant $11,000 being the rental deposit in respect of the abovementioned tenancy and pro-rated rent for the month of October 2005.  The letter also stated inter alia as follows:

“Furthermore, kindly let us have your draft Assignment and Undertaking for our approval as soon as possible.”

The Sub-sale Agreement

39.On 14 October 2005, the Defendant entered into a Sub-sale Agreement (“the Sub-sale Agreement”) in respect of the subject property with the end purchaser one Mr. Bunny Leung.  The Defendant agreed to sell the subject property as Confirmor.

40.Clause 3 together with Schedule 6 of the Sub-sale Agreement are to the effect that completion should take place on 15 October 2005 before 11 a.m.

41.Clause 4 of the Sub-sale Agreement provides as follows:

“4.    The Property is sold and purchased subject to and with the benefit of the tenancy (if any) described in Schedule 7.  In the absence of such tenancy, vacant possession of the Property shall be delivered to the Purchaser by the Vendor on completion.”

42.Schedule 7 of the Sub-sale Agreement sets out the following:

“	SCHEDULE 7

Particulars of Tenancy:-

Subject to the Principal Agreement”

Disagreement over matters concerning the subject tenancy

43.On 14 October 2005, TP issued a letter to TLI enclosing a draft Assignment and a draft Letter of Undertaking for the latter's approval.

44.Clause 1 of the draft Assignment provides as follows:

“1.    In consideration of the Sum of Money paid by the Confirmor to the Vendor (receipt whereof is hereby acknowledged by the Vendor) and in consideration of the Purchase Money paid by the Purchaser to the Confirmor (receipt whereof is hereby acknowledged by the Confirmor) the Vendor as Beneficial Owners at the request and by the direction (hereby testified) of the Confirmor ASSIGN and the Confirmor as Confirmor respectively ASSIGN AND CONFIRM to the Purchaser the property described in the Second Schedule hereto (“the Property”) TO HOLD the same unto the Purchaser as Sole Owner absolutely for the residue of the term of years created by the Government Lease referred to in the said Second Schedule (“the Government Lease”) SUBJECT to the payment of the due proportion of the yearly Government rent reserved by and the covenants conditions and provisos contained in the Government Lease AND SUBJECT to and with the benefit of a Deed of Mutual Covenant and a Sub-Deed registered in the Land Registry by Memorial Nos. ST314896 and ST333266 (collectively hereinafter called “the Deeds”) so far as the same relates to or affects the Property and also subject to the existing lettings and tenancies.”

45.It would be noted the above does not say that the assignment is to be subject to the tenancy in question.

46.By letter dated 14 October 2005, TLI issued a letter to TP enclosing the Letter of Undertaking and Assignment approved as amended by them.

47.TP and TLI were unable to come to agreement with the contents of the proposed Letter of Undertaking and Assignment.

48.Insofar as the Letter of Undertaking is concerned, it would appear that the gist of the dispute relates to the provision of an Indemnity by the Defendant to the Plaintiffs in relation to the rental deposit to be paid over.  This matter has been provided for in Clause 15(c) of the Formal Agreement.  The dispute also relates to the supply of the abovementioned original Tenancy Agreement in Chinese by the Plaintiffs to the Defendant.  TLI had insisted that provisions be made for these matters in the Letter of Undertaking.  TP refused to accept that.

49.Insofar as the Assignment is concerned, TLI had insisted that the proviso "and also subject to the existing lettings and tenancies" to be added to the end of Clause 1 of the Assignment.  TP refused to accept that.

50.In the several days that followed, there was a series of exchanges of correspondence between TLI and TP relating to the above matters.  Arguments were raised and the situation came to a stalemate.  Details of these appear in the correspondence exhibits and I do not propose to repeat all the contents here.

51.Then, on 19 October 2005, TP wrote to TLI stating inter alia as follows:

“We do not accept your Assignment with the insertion of the wording “and also subject to the existing lettings and tenancies”.  We return your said Assignment for your further action.

Please let the bearer of this letter to have the cheques sent to you on 15 October 2005.”

52.On 19 October 2005, TLI wrote to TP stating inter alia as follows:

“We refer to your letter dated 19^th October 2005 together with the Assignment returned (sent under cover of our letter dated 15^th October 2005) and your demand for the return of cheques sent to us on 15^th October 2005.  This is clearly a wrongful repudiation of the Agreement for sale and purchase dated 20^th May 2005 entered into our respective clients.

On behalf of our client, we hereby accept your client’s wrongful repudiation.  According to the said Agreement, our client hereby exercise the right to forfeit the deposit(s) paid thereunder and all our client’s rights to claim for damages is hereby expressly reserved.”

53.On 20 October 2005, TP wrote to TLI stating inter alia as follows:

“Since your client has been in breach and wrongful repudiation of the contract, our client thereby accepts the same and is accordingly entitled to claim all losses and damages from your client, including loss of profit being the price difference and other losses and damages and/or specific performance.

Please let us know if you have any instructions to accept service of legal proceedings for your client.”

54.The Plaintiffs in their Affirmation in Reply said that TP had never requested TLI to provide them with a copy of the Tenancy Agreement.

These proceedings

55.On 28 October 2005, the Plaintiffs issued the Writ herein with Statement of Claim endorsed.

56.On 21 January 2006, TP filed the Defence & Counterclaim herein on behalf of the Defendant.

57.On 27 October 2006, the Plaintiffs took out the above summons which was returnable on 27 November 2006.

58.On 9 November 2006, the Defendant filed a Notice to Act in Person in lieu of TP.

59.On 27 November 2006, on the return date of the above summons, the Defendant appeared in person and asked for time to engage new lawyers.  The hearing of the summons was adjourned to 18 December 2006. 

60.On 6 December 2006, the present solicitors acting for the Defendant filed a Notice to Act.

61.The Defendant filed the Affirmation herein to contest the Plaintiffs' application on 8 December 2006.

62.On 18 December 2006, the above summons was further adjourned for argument.

63.On 30 December 2006, the Plaintiffs filed their Affirmation in Reply.

The first application

64.I should first deal with the application under Order 14.

65.The Defendant may show cause by “affidavit or otherwise”.

66.Counsel for the Defence has not clearly identified the issues during the hearing.  The following would appear to be the issues. But, are they triable issues?

Issue 1

67.One issue would appear to hinge on the alleged misrepresentation by the Plaintiffs to the Defendant through the intermediary Mr. Chiu prior to the signing of the Provisional Agreement.  In essence, the thrust of the argument would be that the Plaintiffs had misrepresented to the Defendant that the subject property would be sold to the Defendant with vacant possession on completion.

68.In this connection, if the Defendant's allegation were that such misrepresentations were made to him directly by the Plaintiffs instead of through the intermediary Mr. Chiu, I would have thought that the issue should be left to be resolved in a trial.

69.Since the matter before me is in the context of an Order 14 application, I would proceed on the assumed basis that Mr. Chiu did make such a misrepresentation to the Defendant.  If so, is there a triable issue? Is it a triable issue that Mr. Chiu had acted on behalf of the Plaintiffs in so doing?

70.As noted earlier, it is not in dispute that at all material times, the Plaintiffs and the Defendant had no direct contact with each other that is of any significance.

71.To me, the Defendant's assertion that Mr. Chiu had made the alleged misrepresentation on behalf of the Plaintiffs amounted to no more than a bald assertion.  There is nothing before me to suggest that Mr. Chiu had actual authority to do so as the agent of the Plaintiffs.

72.The same may be said of ostensible authority or usual authority, or under any kind of authority howsoever described such as express authority, implied authority, apparent authority, customary authority or the like.  There is also nothing to show that the Plaintiffs had ratified the alleged act of Mr. Chiu in making the alleged misrepresentation, notwithstanding the incident in relation to the fax in early October 2005.

73.I do not consider that a triable issue has been raised as it is not believable nor arguable that Mr. Chiu had the authority of the Plaintiffs to make the alleged misrepresentation. So, there is no triable issue here.

Issue 2

74.Another issue would hinge on the alleged misrepresentation by the Plaintiffs to the Defendant through the intermediary Mr. Chiu prior to the signing of the Provisional Agreement that the term of the tenancy would expire on 1 October 2005.

75.In a sense, this may be viewed as part and parcel of Issue 1 above.

76.The same considerations for Issue 1 above apply here.

77.I do not consider that a triable issue has been raised as it is not believable nor arguable that Mr. Chiu had the authority of the Plaintiffs to make the alleged misrepresentation. There is no triable issue here as well.

Issue 3

78.Yet another issue would hinge on the alleged misrepresentation by the Plaintiffs to the Defendant by virtue of the fax sent to the Defendant by Mr. Chiu in early October 2005.  The Defendant appears to be saying that the fax constituted a misrepresentation that the subject property was to be sold with vacant possession on completion.  The Defendant also appears to be saying that he had changed his position in reliance upon the misrepresentation in that he entered into the Sub-sale Agreement with the end purchaser, hence there is an operative estoppel.

79.I would approach this issue on the assumed basis that Mr. Chiu did have authority to send the fax to the Defendant on behalf of the Plaintiffs.

80.It is however totally unarguable that the contents of the fax could amount to the alleged misrepresentation. There is therefore no triable issue here as well.

Issue 4

81.The Defendant appears to be saying that the Plaintiffs were somehow contractually bound to accept the Letter of Undertaking and the Assignment imposed by TP on an “as is” basis. In other words, the agreement between the parties was to assign the subject property free from the encumbrance of the tenancy in question.

82.This is basically a question of the construction of the Formal Agreement in the light of all the surrounding circumstances.

83.The Defendant's contention is totally unarguable.

84.I should note the following at this juncture:

The First Schedule to the Conveyancing and Property Ordinance, Cap. 219 (“CPO”) sets out the implied covenants in any assignment of land.

85.Covenant 3 of the First Schedule of the CPO provides as follows:

“3.   That the vendor now has good right and title to assign the land free from encumbrances save as specified in the assignment and subject to the manner in which the assignment is expressed to be made.”

86.Thus, unless the Assignment in question provides that the subject property is assigned subject to the tenancy in question, the Plaintiffs would be taken to have warranted and agreed to assign the subject property free from the encumbrance of the tenancy in question.

87.As noted earlier, Clause 32 of the Formal Agreement has incorporated the covenants of Part A of the Second Schedule of the CPO. Covenant 5 thereof deals with tenancy matters in an assignment.  That does not however detract from the above.

88.As noted earlier, Clause 32 of the Formal Agreement contains a provision which, if left to stand alone is incomprehensible on its face, viz: "In case if there are any conflicts between the terms and in the said Agreement and the covenants in this Agreement shall prevail" (sic). However, no matter whether the terms and conditions of the Formal Agreement shall prevail over the covenants in Part A of the Second Schedule of CPO or vice versa, in either case, it does not raise a triable issue.

89.Gibson's Conveyancing, 21st edition, pages 253-254 say the following about the doctrine of merger:

"Contract for sale merges in conveyance, except as regards collateral stipulations. As a rule, when the conveyance has been executed, the preliminary contract for sale will be merged in the conveyance and extinguished, and is not evidence of what passed by the conveyance.  But the deed of conveyance only extinguishes the contract so far as the deed is intended to cover the same ground as the contract………And where a special condition in a contract for sale provided that the property was sold "with vacant possession on completion," and the vendor failed to give vacant possession of the whole property on completion because a flat forming part of it was occupied by a tenant protected by the Rent Act, the special condition was not merged in the conveyance and the purchaser was entitled to damages."

90.In the present case, the execution of the above Assignment without the proviso that the assignment of the subject property is subject to the existing tenancy would amount to an agreement that the subject property is to be assigned with vacant possession, free from the encumbrance of the tenancy in question.

91.I am of the view that the Plaintiffs were entitled to insist on the insertion of the proposed amendments to the draft Assignment and the Letter of Undertaking.

92.There is therefore no triable issue here as well.

Some other reason for trial?

93.The Defendant's Affirmation disclosed no attempt on the Defendant's part to approach Mr. Chiu with a view to take a statement from him.

94.At the bar table, Counsel for the Defendant took instructions from those instructing him upon being asked to do so from the Court.  Counsel for the Defendant then said that the Defendant had tried to obtain a statement from Mr. Chiu who had declined to furnish it.  I was not told of Mr. Chiu’s response in relation to the alleged misrepresentations.

95.Counsel for the Defendant firmly indicated that, if leave to defend were granted, the Defendant had no intention of issuing any Third Party proceedings against Mr. Chiu on the ground that he had been in breach of any warranty of authority made by him towards the Defendant.

96.Counsel for the Defendant submitted that there should be a trial whereby Mr. Chiu could be summoned to Court for examination.

97.The Plaintiffs have never indicated that they would call Mr. Chiu as their witness. If the Defendant were to summon Mr. Chiu to Court as a Defence witness, the Defendant has no right to cross examine Mr. Chiu.

98.Mr. Chiu’s evidence is a matter of conjecture at this stage.  If there were to be a trial and if he were to testify, he may deny having made the alleged misrepresentations.  He may admit that he had made the alleged misrepresentations but he did it without the authority of the Plaintiffs. To succeed in his Defence, the Defendant will have to prove not only the alleged misrepresentations were in fact made by Mr. Chiu, but also they were made with the authority of the Plaintiffs or that the Plaintiffs had ratified Mr. Chiu’s act. Nonetheless, this remains a possibility. Is it right to say that, at this stage, that if Mr. Chiu were to testify that he did make the alleged misrepresentation under the Plaintiffs' authority, his such evidence would be unbelievable?

99.I have considered what is said in (1) Miles v. Bull (1969) 1 QB 258 , (2) Bank fur Gemeinwirtschaft v. City of London Garages Ltd. & Others, (1971) 1 All ER 541 , (3) State Trading Corporation of India v. Doyle Carriers Inc. & Others, (1991) 1 Lloyd's Rep 55 , and (4) Talent Wise Limited v. Cheung Shui Ching, HCA 11309/1997, 27 April 1998 on the question of whether there should be some other reasons for a trial of the Plaintiffs' claims. I have also noted the discussion in Hong Kong Civil Procedure 2007, para 14/4/10.

100.I would note in particular the following dictum in Miles v. Bull supra:

"Accordingly, if the question is whether or not the defendant has an arguable defence to the claim, I would have to answer No: for as matters stand I can perceive no such defence. All that can be said is that this is a transaction which ought to be scrutinised with some care; for plainly it bears something of the appearance of a device to evict the defendant. A device may, indeed, be a perfectly genuine transaction and no sham: that it was devised for a particular purpose by no means necessarily implies that it pretends to be what it is not. However, if a transaction is carried through not for its own sake, but in order to achieve some ulterior purpose, it may be found on examination that it has travelled the road from artifice and artificiality to sham.

In these circumstances, I think that it is necessary to examine the precise wording of Order 14. Under the former Order 14, r. 1, a defendant could obtain leave to defend if he satisfied the judge that he had a good defence to the action on the merits, or disclosed 'such facts as may be deemed sufficient to entitle him to defend the action generally.' I do not see how that can be said to be the case here. The language of Order 14 has, however, been changed, and it is the new language that I must apply.

Under rules 3 and 4 of the present Order 14, the defendant can obtain leave to defend if (and I read from rule 3(1)) the defendant satisfies 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.' These last words seem to me to be very wide. They also seem to me to have special significance where, as here, most or all of the relevant facts are under the control of the plaintiff, and the defendant would have to seek to elicit by discovery, interrogatories and cross-examination those which will aid her. If the defendant cannot point to a specific issue which ought to be tried but nevertheless satisfies the court that there are circumstances that ought to be investigated, then I think that those concluding words are invoked. There are cases when the plaintiff ought to be put to strict proof of his claim, and exposed to the full investigation possible at a trial; and in such cases it would, in my judgment, be wrong to enter summary judgment for the plaintiff. In the present case the plaintiff's evidence initially consisted of a single affidavit in which brevity could scarcely be carried further. He has now amplified this by further evidence, but this is certainly not exhaustive or conclusive. The words 'there ought for some other reason to be a trial' seem to me to give the court adequate powers to confine Order 14 to being a good servant and prevent it from being a bad master. If I may adapt the language of Lord Parker of Waddington in Daimler Company Ltd. v. Continental Tyre & Rubber Co. (Great Britain) Ltd., referred to in the notes to Order 14 in the Supreme Court Practice, 1967, p. 122, if the circumstances of the case are 'such as to require close investigation,' this will 'preclude the propriety of giving leave to sign judgment under Order 14, r. 1.' The question is thus whether this is such a case.

I think it is. In my judgment 'there ought for some other reason to be a trial'; and the reason is that of justice. By carrying through a transaction at unusual speed the defendant's husband is seeking to enable the plaintiff to do what he himself cannot do, namely, evict the defendant from her home. The husband has whatever rights the law gives him, and so has the plaintiff; but in the circumstances of the case I do not think that it would be just if the plaintiff were able to enforce the rights which he claims without being put to strict proof that they do enable him to evict the defendant. I was told that, in granting leave to defend, Master Jacob said that the case was 'too near the bone for Order 14.' That, if I may say so, seems to me to summarise admirably what I have tried to express in greater detail. Order 14 is for the plain and straightforward, not for the devious and crafty. There is here a case for investigation, and so not for summary decision."

101.I note that there is nothing before me to show that the Plaintiffs themselves had acted in a suspicious manner. There is nothing to show that there are materials in the Plaintiffs' possession which would have a significant bearing on the issues so that it would be unjust to adjudicate on the matter without going through the process of discovery of documents.

102.The drafting of the Provisional Agreement and the Formal Agreement left much to be desired. But when one takes a closer look at the matter, it is nonetheless clear that the parties has never intended to provide for the assignment of the subject property free from the encumbrance of the tenancy in question as a matter of certainty. The delivery of vacant possession on completion is clearly a contingent event, a mere possibility but not a certainty. That is the parties' clear intention under the Provisional Agreement.

103.The Provisional Agreement is a simple contract document consisting of only two pages. Clause 18 was specifically inserted thereto. The inaccurate wording of Clause 18 of the Provisional Agreement does not detract from the clear intention of the parties that it was a mere possibility and not a certainty that vacant possession of the subject property would be delivered on completion. Although it is alleged that there was an oral misrepresentation by Mr. Chiu that there would be vacant possession on completion, the alleged misrepresentation is in conflict with Clause 18 of the Provisional Agreement. I note that the alleged oral misrepresentation by Mr. Chiu that the tenancy in question would expire on 1 October 2005 does not conflict with Clause 18 of the Provisional Agreement, but that is only one facet of the entire picture to be considered.

104.The above intention of the parties remained clear when the Defendant subsequently concluded the Formal Agreement. Then, both parties were represented by their own solicitors. No issue of prior misrepresentation was raised at that stage or thereafter. Indeed the allegation of misrepresentation appears only for the first time in the Defendant's Affirmation. That said, it is also evident that the drafting of the Formal Agreement is poor and somewhat unprofessional. That is of some relevance to the question of whether the Defendant had received competent legal advice and service from TP. Whether the Defendant had received competent legal advice and service is relevant to the question of why the allegations of misrepresentations were not raised earlier. I also note that it was TP who represented the Defendant at the earlier stage of these legal proceedings but there was a subsequent change of solicitors. The Defence and Counterclaim contain no averment of the alleged oral misrepresentation. The Defendant's Affirmation in opposition to the Plaintiffs' applications herein was prepared by the new solicitors. It raised the issue of the alleged oral misrepresentation.

105.All circumstances considered, I would say that although the alleged oral misrepresentations do not sit comfortably with the Provisional Agreement and the Formal Agreement, nonetheless it would not be right to say that such evidence is unbelievable if it were forthcoming in a trial.

106.I have not been able to come to this decision without some hesitation and difficulty. I have derived little assistance from Counsel on both sides in the hearing. Of the rather limited legal researches that I have been able to conduct on my own, I have not been able to find any decision that is on all fours with the facts of the present case. Nonetheless, in the end, I have come to the conclusion that there should be leave for the Defendant to defend. I consider that this is a case for investigation, not summary decision. Justice requires it. I have considered the option of granting conditional leave for the Defendant to defend but I am not prepared to say that there is a good ground in the evidence for believing that the defence set up in a sham or that I am prepared very nearly to give judgment for the Plaintiffs. I would grant the Defendant unconditional leave to defend.

Order 14A

107.Order 14A is suitable when there is a question of law or construction to be determined. The Defendant had not consented to an order or judgment on such determination, pursuant to Order 14A Rule 1(3)(b). For the same reasons given above, the Plaintiffs' application cannot succeed under Order 14A.

The second application

108.The Plaintiffs sought to have the Counterclaim dismissed.

109.Counsel for the Defence did point out that the Plaintiffs had failed to comply with the practice of specifying their complaints, the requirement of which is set out in Hong Kong Civil Procedure 2007, para 18/19/3(3) at page 332. He took the matter no further than that.

Order 18 Rule 19(1)(a)

110.Order 18 Rule 19(1)(a) is obviously not a viable route for the Plaintiffs. In effect, the Counterclaim avers that the Plaintiffs were obliged to assign the subject property to the Defendant with vacant possession.  I cannot look beyond the 4 corners of the Defence under Order 18 Rule 19(1)(a).

Order 18 Rule 19(1)(b) & (d)

111.I am however entitled to look at the evidence before me under other routes, viz: Order 18 Rule 19(1)(b) and (d).

112.Hong Kong Civil Procedure 2007, para 18/19/3(4) at page 332 says as follows:

"Affidavit evidence is equally inadmissible where the only ground on which the statement of claim can be said to disclose no reasonable cause of action is that the action is unlikely to succeed. But in applications on any of the other ground mentioned in the rule or where the inherent jurisdiction of the court is invoked, affidavit evidence may be and ordinarily is used by virtue of the general jurisdiction of the court."

113.Hong Kong Civil Procedure 2007, para 18/19/8 at page 335 says as follows:

"A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed."

114.In relation to the approach under Order 18 Rule 19(1)(b), I think I can dispense with any discussion as to whether the Counterclaim is scandalous. Clearly, it is not. But, is the Counterclaim of the Defendant frivolous or vexatious?

115.I have considered what is said in (1) Day v. William Hill (Park Lane) Ltd. (1949) 1 KB 632 , (2) Law v. Dearnley (1950) 1 KB 400 , (3) Overseas Trust Bank Limited v. Coopers & Lybrand (a firm) & Others v. Anthony Wentworth Howitt & Others, CACV 109/1989, 29 January 2003 , (4) Viva Steamship Company Limited v. Chow Lim Choy & Others, HCA 1722/2001, 7 May 2002 ,and (5) Viva Steamship Company Limited v. Chow Lim Choy & Others, CACV 287/2002 . I have noted the discussion in Hong Kong Civil Procedure 2007, para 18/19/8 .

116.I consider that the success or otherwise of the Plaintiffs' application will depend on whether it is shown that what has been pleaded in the Counterclaim is "wholly imaginary, a myth or not bona fide". I do consider the Defendant's Counterclaim to be "wholly imaginary, a myth or not bona fide" for substantially the same reasons that I have set out above in relation to the first application. I have observed earlier on that the Defence and Counterclaim contain no averment as to the alleged oral misrepresentation.

Similarities between Order 14 and Order 18 Rule 19(1)(b) approaches

117.I should note that in Viva Steamship CACV 287/2002 supra, which concerns an appeal against the refusal of an application to strike out the defence and counterclaim under Order 18 Rule 19, the Court of Appeal has noted that the application was conducted on the basis of an application for summary judgment under Order 14, without passing any adverse comment on such an approach. Hon Rogers VP says:

"One observation in relation to the nature of these proceedings which was made during argument and still seems to be valid is that these proceedings were conducted more on the basis of an Order 14 summary judgment application than they were to proceedings to strike out a pleading."

Some other reason for trial under Order 18 Rule 19(1)(b)?         

118.In Viva Steamship CACV 287/2002 supra, Hon. Rogers VP also considered the factor of evidence not before the court as a ground for upholding the decision in the Court below not to strike out the counterclaim therein:

"Neither do I accept that all the evidence which the defendants can adduce in court is now before this court. In short, I consider that the facts of this case are indeed strange and I consider that there are matters which merit trial."

119.I have covered this aspect in the discussion above in relation to the Plaintiffs' first application and would propose not to repeat the same here. Since I have decided to grant the Defendant unconditional leave to defend, would it be right for me to dismiss the Defendant's Counterclaim in the circumstances? I have received no assistance from Counsel on both sides on this point. I have not been able to find any authority on this point. Using my common sense, I think the obvious answer should be "no".

120.I am satisfied that the Counterclaim of the Defendant should not be dismissed in the circumstances under Order 18 Rule 19(1)(b).

Order 18 Rule 19(1)(d)

121.With that, I need say very little about the approach under Order 18 Rule 19(1)(d). Although the Defence and Counterclaim is without substance, it would not be right in the circumstances of the present case to dismiss the Counterclaim for the same reasons given above. I would note the following discussion in Hong Kong Civil Procedure 2007, para 18/19/10 :

"The categories of conduct rendering a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interests of justice may be very material."

122.I anticipate that the Defendant will make an application to amend its Defence and Counterclaim in due course.

Orders

123.The Plaintiffs have thus failed in both applications. On the question of costs, I appreciate that costs should normally follow the event. But here the Plaintiffs were not made aware of the Defendant's case of the alleged oral misrepresentation until the filing and service of the Defendant's Affirmation on about 8 December 2006. The Plaintiffs were thus misled into taking out these applications. I would make the following orders accordingly:

(1) The first application is dismissed.

(2) The second application is dismissed.

(3) On both applications, there be an Order Nisi that the costs of these applications up to 8 December 2006 be costs in the cause. For the avoidance of doubt, this would include the costs of and incidental to the hearing on 27 November 2006. There be Certificate for Counsel. Unless there is an application to vary this Order Nisi, it shall become absolute in 14 days.

(4) On both applications, there be an Order Nisi that the Plaintiffs do pay the Defendant's costs of these applications after 8 December 2006 to be taxed if not agreed. For the avoidance of doubt, this would include the costs of and incidental to the hearing on 18 December 2006. There be Certificate for Counsel. Unless there is an application to vary this Order Nisi, it shall become absolute in 14 days.

Representation:

Mr. Paul Harris, S.C., instructed by Messrs. K.W. Luk & Co., for the Plaintiffs

Mr. Roland Lau, instructed by Messrs. S.T. Poon & Wong, for the Defendant