First View Development Ltd v. Pat City Ltd
Read the full judgment text of HCA 2071/2006 on BabelCite. This High Court CFI judgment was delivered on 13 November 2007.
1. This is an application by the defendant for summary judgment under O. 86; r. 8 of the RHC for the relief claimed in the counterclaim. In the alternative the defendant seeks an order that the plaintiff do provide security for the defendant’s costs of the action and that all further proceedings in this action be stayed until security is provided.
Cites 4 cases
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HCA2071/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2071 OF 2006 ______________________ BETWEEN
______________________ Before : Hon Sakhrani J in Chambers Date of Hearing : 2 October 2007 Date of Judgment : 13 November 2007 ______________________ JUDGMENT ______________________ 1.This is an application by the defendant for summary judgment under O. 86; r. 8 of the RHC for the relief claimed in the counterclaim. In the alternative the defendant seeks an order that the plaintiff do provide security for the defendant’s costs of the action and that all further proceedings in this action be stayed until security is provided. Background 2.The plaintiff (“the purchaser”) was the purchaser of 3 shop premises (“the 3 shops”) known as shops G27, G28 and G29 on the ground floor of the Commercial Podium, Sincere House, 38 Argyle Street, Kowloon, Hong Kong. At all material times the 3 shops were registered in the name of the defendant (“the vendor”). 3.By 3 provisional sale and purchase agreements all dated 10 March 2006 between the vendor and the purchaser (“the provisional agreements”) the vendor agreed to sell and the purchaser agreed to purchase respectively shops G27, G28 and G29 on the terms and conditions set out therein. Completion was to take place on 10 August 2006. 4.Pursuant to the terms of the provisional agreements the vendor and the purchaser entered into 3 separate formal sale and purchase agreements all dated 10 April 2006 (“the agreements”) for the sale and purchase of respectively shops G27, G28 and G29 on the terms and conditions set out therein which were the same for all 3 agreements. 5.Each of the shops was sold subject to existing tenancy. 6.By clause 2 and Part I of Schedule 3 of the agreements the purchase price for each of the shops was $10,600,000. The purchase price was to be paid by the purchaser to the vendor as follows :
7.By clause 3 and Part II of Schedule 3 of the agreements completion was to take place on or before 10 August 2006. 8.The purchaser duly paid the initial deposits and the further deposits in the total sum of $3,180,000 in accordance with the agreements. 9.By letter dated 4 May 2006 from the vendor’s solicitors to the purchaser’s solicitors the vendor sent to the purchaser all the title deeds and documents set out in the Schedule annexed to the letter. One of the documents set out in the Schedule was a certified copy permit No. K224/94 dated 9 December 1994 (“the permit”). 10.By letter dated 12 May 2006 the purchaser’s solicitors by way of raising a requisition (“the 1st requisition”) requested the vendor’s solicitors to produce “certified copy approved plans dated 9 December 1994 as referred to in [the permit]” (“the approved plans”) for their approval. 11.By letter dated 24 June 2006 the vendor’s solicitors replied stating that the approved plans did not form part of the title deeds and were not required to be produced for proving title. 12.After this there was no reply or objection or further requisition from the vendor’s solicitors until 10 August 2006 shortly before the time for completion. Completion was to take place before 5 pm on that day. 13.By letter dated 1 August 2006 from the purchaser’s solicitors to the vendor’s solicitors it was alleged that the purchaser and vendor had agreed to extend the time for completion from 10 August 2006 to 10 November 2006 provided the purchaser pay the vendor on or before 10 August 2006 a sum of $900,000 being interest for the balance of purchase price under the agreements. The letter was marked “subject to contract”. 14.By letter also dated 1 August 2006 from the vendor’s solicitors to the purchaser’s solicitors it was denied that there was such an agreement to postpone completion. 15.At around 2.49 pm on 10 August 2006 the day of completion the vendor’s solicitors received a letter from the purchaser’s solicitors raising for the first time another requisition (“the 2nd requisition”). The letter stated that :
16.An investigation report by Daniel Tong an authorized person dated 10 August 2006 was also sent with the letter. 17.The vendor’s solicitors replied on the same day referring to clause 11 of the agreements and taking the point that the 2nd requisition had been raised out of time and was deemed to be waived. They did not answer the 2nd requisition. 18.There was further correspondence between the solicitors on 10 August 2006. The purchaser’s solicitors denied that the 2nd requisition was raised out of time and was deemed to be waived and insisted that the vendor was obliged to answer the 2nd requisition. 19.By letters dated 10 August 2006 the vendor’s solicitors gave notices pursuant to clause 18 of the agreements that as the purchaser failed to complete the sale and purchase of the 3 shops the vendor exercised its right to determine the sale of the 3 shops and forfeited the deposits in the sum of $1,060,000 under each of the agreements. The proceedings 20.By a writ of summons issued on 18 September 2006 the purchaser instituted proceedings against the vendor for:
21.The statement of claim was filed on 3 October 2006. 22.The vendor filed a defence and counterclaim on 20 November 2006. By its counterclaim the vendor seeks :
Any triable issue? 23.On the vendor’s application for summary judgment Mr Chan, for the purchaser, submitted that there are triable issues as follows :
24.It is useful to bear in mind what Godfrey J (as he then was) said in Unic Co v Centus Development Ltd [1988] HKC 643 at 647 :
25.What Godfrey J said in respect of an O.14 application applies equally to an application for summary judgment under O.86. Clause 11 26.Clause 11 of the agreements provided as follows :
27.It is also important to bear in mind clauses 16 and 17 of the agreements. 28.By clause 16 the vendor had the obligation both to show and to give good title to the shops. 29.By clause 17 time in every respect was made to be of the essence of the agreements. 30.The 2nd requisition was raised very late and outside the time limit provided for under clause 11. It was only raised at about 2.49 pm on 10 August 2006 on the day of completion where completion was to be before 5 pm. 31.By the letter dated 10 August 2006 containing the 2nd requisition the purchaser’s solicitors was making the point that the purchaser had just been advised by its architect that there were contraventions to Regulation 72 of the Building (Planning) Regulations Cap. 123 and the Design Manual Barrier Free Access as there was no disabled access to any of the 3 shops. 32.It appears from the evidence that in the approved plans of the building works to the Commercial Podium of Sincere House approved by the Buildings Department in 1994 there were no partition walls between shops G27 and G89, between shops G28 and G91 and between shops G29 and G93 on the ground floor of the Commercial Podium. The approved plans showed that disabled access could be gained from the internal corridors or passages of the Commercial Podium to the 3 shops through shops G89, G91 and G93 respectively. However, in carrying out the building works and without any approval from the Buildings Department, partition walls were erected between shops G27 and G89, between shops G28 and G91 and between shops G29 and G93 with the result that disabled access to shops G27, G28 and G29 could no longer be gained. 33.By the said letter the point was also made that the 3 shops would be subject to enforcement action by the Buildings Department. 34.Mr Ng, for the vendor, relying on Mexon Holdings Ltd v Silver Bay International Ltd [2000] 2 HKC 1 submitted that the 2nd requisition was raised out of time and on a construction of clause 11 of the agreements was deemed to be waived. 35.In Mexon the court came to the view that it was too late for the purchaser to raise the requisition in that case. 36.I would observe that in Mexon, unlike this case, the title documents sent to the purchaser’s solicitors included a certificate by an architect stating that the internal partitioning work complied with the Building Ordinance Regulations. Also, in Mexon the court came to the view that it was not adequately explained why the requisition was as late as it was (per Bokhary PJ at page 10H). 37.Mr Chan submitted that the vendor did not supply a set of the approved plans to the purchaser in answer to the 1st requisition. The approved plans were only obtained by the purchaser’s architect on or about 8 August 2006 from the Buildings Department and it was only then that the architect was in a position to advise the purchaser. Mr Chan relied on the evidence of Wong Hoi Ming in his affirmation filed on behalf of the purchaser and submitted that the purchaser has adequately explained why the 2nd requisition was raised so late. 38.Wong Hoi Ming states at paragraphs 16 to 18 of his affirmation as follows :
39.What Wong Hoi Ming states as set out above are disputed facts. These disputes of fact cannot be resolved on affidavit evidence. 40.Also, whether what Wong Hoi Ming says amounts to an adequate explanation for not observing the time limit for raising requisitions under clause 11 of the agreements is, in my view, a matter to be resolved at trial. It seems to me that it is arguable that there is an adequate explanation given by the purchaser for not observing the time limit under clause 11. A triable issue has been raised. 41.Mr Chan also relied on Billion Best (Hong Kong) Ltd v Amity Investment Co Ltd and another [2002] 1 HKLRD 392 where it was held that where there was a severe defect of title within the vendor’s knowledge, but not known to the purchaser, it would be unconscionable for a vendor to rely on the clause limiting the time to raise requisitions. Mr Chan submitted that the vendor had the approved plans but refused to supply a set to the purchaser when the 1st requisition was raised. It was arguable, he submitted, that the vendor knew of the unapproved building works but that the purchaser did not and hence it would be unconscionable for the vendor to rely on the time limit in clause 11 to prevent the purchaser from raising the 2nd requisition. In my view, the question of the extent of the vendor’s knowledge is also a question of fact and this should be resolved at trial. Was the 2nd requisition properly raised? 42.Mr Ng relied on clause 12 of the provisional agreements and submitted that the purchaser was not entitled to raise the 2nd requisition. Clause 12 of the provisional agreements provided that :
43.Mr Ng also relied on clause 7 of the agreements which provided that :
44.It can be seen that clause 12 of the provisional agreements by providing that the purchaser shall not raise requisitions on the ground that there are, inter alia, unapproved alterations in the shops goes much further than what is provided in clause 7 of the agreements. Mr Chan submitted that the provisions of clause 12 of the provisional agreements do not apply as the provisional agreements were superseded by the agreements. He also relied on clause 29 of the agreements which provided that :
45.It seems to me that it is arguable whether the vendor can rely on clause 12 of the provisional agreements to prevent the purchaser from raising the 2nd requisition. 46.In All Ports Holdings Ltd v Grandfix Ltd [2001] 2 HKLRD 630 it was held that a provision for sale of property on an “as is” basis and a reference to its physical state and condition did not mean that it extended to illegal structures. 47.In Regent Summit (Hong Kong ) Ltd v Smart Business (Asia) Ltd [1998] 2 HKC 718 it was held that the fact that the purchaser was aware of the alterations could not be regarded as a waiver of its right to raise requisitions on the title, or as an act implying acceptance of title in that respect. 48.In my view, it is also arguable whether the vendor can rely on clause 7 of the agreements to prevent the purchaser from raising the 2nd requisition in respect of the unapproved partitioning of the shops. On this also, a triable issue has been raised. 49.Mr Ng also submitted that there was no substance in the 2nd requisition as neither the Building (Planning) Regulations Cap. 123 nor the Design Manual Barrier Free Access applied. In this context he relied on Mexon where Litton PJ said at page 7 that the Building (Planning) Regulations, as the name implies, govern the planning of buildings, before they are built. In this case the building was built in about 1963 and hence Mr Ng submitted that the Building (Planning) Regulations were not engaged. He also submitted that the Design Manual Barrier Free Access was only promulgated in 1997 and applies to private buildings constructed or substantially altered after that time. As the partitions were erected before 1997, Mr Ng submitted that the Design Manual Barrier Free Access was not engaged. 50.Despite Mr Ng’s persuasive arguments, I am unable to say that no triable issue has been raised. I bear in mind the correspondence exhibited to the affirmation of Kwok Sik Yuen filed on behalf of the purchaser. The evidence shows that by letter dated 2 May 2007 from Norman Yiu, the purchaser’s architect, to the Buildings Department, the Buildings Department’s attention was drawn to the fact that there was no disabled access at, inter alia, shops G27, G28 and G29 due to the erection of partition walls blocking the barrier free access and asked for the Buildings Department’s prompt action. 51.By letter dated 18 May 2007 from Norman Yiu to the Buildings Department for the attention of Cheung Ping-chuen, Norman Yiu put on record their telephone conversation by stating that :
52.By letter dated 21 May 2007 Cheung Ping-chuen of the Buildings Department wrote to Norman Yiu as follows :
53.It is clear that the Buildings Department was taking the view that enforcement action will be taken if rectification works are not carried out. 54.It is important to remember that by clause 16 of the agreements the vendor had the obligation both to show and to give good title. On the evidence before me there was a real risk of enforcement action by the Buildings Department as evidenced by the correspondence that I have referred to. That being so, can it be said that there is no triable issue as to whether or not the requisitions were properly raised or whether the vendor had discharged its obligation to show and to give good title? 55.In Kan Wing-yau and another v Hong Kong Housing Society [1988] 2 HKLR 187 it was held that the obligation on a vendor to prove good title was to establish beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance. It was only if the blot on the title were purely theoretical and not a practical blot that it could be ignored. 56.In Spark Rich (China) Ltd v Valrose Ltd [2006] 2 HKC 589 at page 598 Godfrey JA (as he then was) helpfully said :
57.Here, the Buildings Department has stated that enforcement action will be taken if remedial measures are not taken in respect of providing disabled access to the shops. It seems to me that there is a triable issue as to whether the requisitions were properly raised and whether the vendor has shown and proved good title. 58.In my judgment as triable issues have been raised, the purchaser is entitled to unconditional leave to defend the counterclaim and I so order. Security for costs 59.In the alternative the vendor seeks an order for security for its costs of defending the action. 60.The jurisdiction to order security for costs is contained in section 357 of the Companies Ordinance Cap. 32 which provides that :
61.The court has a discretion whether or not to order security for costs. On a plain reading of section 357 it is only where “it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant” that the court goes on to exercise its discretion as to whether or not to order security. The burden is on the vendor to satisfy the court by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant. It is not sufficient to show that there is reason to believe that the company may be unable to pay such costs. 62.The vendor relies on the fact that the purchaser was only incorporated on 24 September 2004. It only has an authorized share capital of $10,000 and a paid up capital of $100. It also relies on the fact that at its registered address the purchaser’s name was not displayed in either the building directory in the main lobby of the ground floor or on the floor in the building where its registered office is situate. It also relies on the fact that the purchaser’s English name is not in PCCW’s English White Pages from 2004 to 2006 nor in PCCW’s Chinese White Pages for the years from 2003 to 2006. The vendor also makes the point that the preliminary deposits under the agreements were paid not by the purchaser but by another company Pine Luck Development Ltd. The assertion is then made that the purchaser is a shelf company with no business of its own and no assets and the court is asked to conclude that the purchaser will be unable to pay the costs. 63.I am not satisfied on the evidence that there is reason to believe that the purchaser will be unable to pay the defendant’s costs if successful in defending the action. 64.Wong Hoi Ming in his affirmation pointed out that Pine Luck Development Ltd which paid the total amount of $300,000 under the provisional agreements was a related company of the purchaser with common directors and beneficial shareholders. He also produced a profits tax payment voucher issued by the Inland Revenue Department showing that the purchaser paid the first instalment of profits tax in the sum of $234,931 as well as the second instalment of profits tax in the sum of $78,310 on 26 January 2006. Thus the total sum of $313,241 was paid as profits tax by the purchaser for the year 2004 to 2005. The purchaser must have generated sufficient profits during that year to be liable for that amount of profits tax. It cannot seriously be suggested that the purchaser was not an active company with no business of its own. 65.The vendor fails to satisfy me that the purchaser will be unable to pay the vendor’s costs if successful in defending the action. That being so, the question of the court’s discretion does not arise. I dismiss the application for security for costs. 66.I also make an order nisi that the costs of the application for summary judgment be costs in the cause and that the costs of the application for security for the vendor’s costs be costs to the purchaser in any event.
Mr Kenneth C. L. Chan, instructed by M/s Tam, Pun & Yipp, for the Plaintiff Mr Lawrence Ng and Ms Frances Lok, instructed by M/s C. L. Chow & Macksion Chan, for the Defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment