Lai Ke Bin v. Capital Project Development Ltd

HCMP791 / 2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 791 OF 2008

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BETWEEN

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Before: Deputy High Court Judge Au in Court

Dates of Hearing: 18 September 2008

Dates of Filing of Further Evidence: 23 and 30 September 2008

Date ofHanding Down Judgment: 12 November 2008

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JUDGMENT

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I.   Introduction

1.This is the hearing of a vendor and purchaser’s summons relating to the sale and purchase of House No. 21 of Greenery Villas, Phase II, at Sha Tin (“the House”). 

2.By way of the present application, the purchaser Lai Ke Bin (the Plaintiff) seeks an order against the vendor Capital Project Development Ltd (the Defendant) for specific performance of the agreement (“the Agreement”) for sale and purchase of the House dated 1 December 2007.  The purchase price under the Agreement is $33,000,000, and the scheduled completion date (“the Completion Date”) under it was 4 January 2008.   Mr Lai has pursuant to the Agreement paid a deposit in the sum of $3,300,000.

3.For convenience, I will in this judgment refer to Mr Lai as the Purchaser and Capital Development as the Defendant.  I will also refer to the Purchaser’s solicitors in the conveyancing transaction as AFN^[1], and the Vendor’s as LWL^[2].

4.The sale under the Agreement did not complete on 4 January 2008.  As usually expected in this type of cases, the Purchaser says it was because the Vendor had failed to answer the requisitions satisfactorily, while the Vendor claims that the requisitions had been properly answered and that it was the Purchaser who was in breach of the Agreement in failing to complete on time. 

5.The long and short of it is that on 15 January 2008, the Vendor through LWL purported to exercise its right to terminate the Agreement upon the Purchaser’s breach, and forfeited the deposit of $3,300,000.

6.An interesting twist of this case is that, notwithstanding a falling market since the date of the Agreement, and that the present market price of the House (or a similar one) is appreciably lower than $33,000,000, the Purchaser now wants to complete the sale by seeking specific performance of the Agreement, but the Vendor insists on its right to terminate the Agreement and not to sell. 

7.Hence the present application.

II.  The present application

The Purchaser’s case

8.Although it has not been made very clear in the Originating Summons and the affirmations filed in support of it, the gist of the Purchaser’s case can be summarized as follows:

(1) By the Completion Date, the Vendor had failed to answer satisfactorily the Purchaser’s requisition (“the Requisition”)[3] in relation to whether the three-storeyed House (inclusive of the carport on the ground level) was built in breach of Special Condition 9(a) of the New Grant of the subject lot.  The condition provided that the House should not be of more than two storeys from ground level. 

(2) Given the Vendor’s breach of the Agreement in failing to answer the Requisition satisfactorily, the Purchaser was entitled not to proceed to complete on the Completion Date.  

(3) But the Purchaser had not accepted the breach.  As a result, the Vendor was not entitled to terminate the Agreement on 15 January 2008 as it purported to do.  The termination is thus invalid. 

(4) As the Purchaser has not accepted the Vendor’s above breach of the Agreement, the Purchaser is still entitled to specific performance of the Agreement.

(5) Alternatively, even if the Vendor had answered the Requisition satisfactorily by the Completion Date, by its conduct in continuing to attempt to answer the Requisition after the Completion Date, it had elected to affirm the Agreement and had waived its right to terminate it.  The purported termination of the Agreement on 15 January 2008 was therefore still invalid and the Agreement has been kept alive.  In the circumstances, the Purchase is similarly entitled to specific performance of the Agreement. 

(6) Further alternatively, as the Vendor only answered the Requisition on 3 or 4 January 2008, the Purchaser should be allowed a reasonable period of time to properly consider the answers and was therefore not in breach of the Agreement when he did not complete on 4 January.  As such the Vendor was not entitled to terminate the Agreement on 15 January, and the said termination was invalid.   The Purchaser should now be entitled to specific performance of the Agreement.

The Vendor’s case

9.The Vendor’s case is essentially as follows:

(1)  It had answered the Requisition satisfactorily by the Completion Date.  The Purchaser was therefore in breach of the Agreement in not completing on time. The Vendor was entitled to accept the breach and terminate the Agreement on 15 January.

(2)  The Vendor had not waived its right to terminate the Agreement by reason of the Purchaser’s breach or elected to affirm the Agreement. 

(3)  As the answer to the Requisition was an obvious and simple one, the Purchaser had had sufficient time to consider it before completion.  Thus, the Vendor was entitled to accept the breach and terminate the Agreement on 15 January.

(4)  In any event, even if the Vendor had failed to answer the Requisition satisfactorily, and the termination of the Agreement on 15 January was invalid, the Purchaser is nevertheless not entitled to a decree of specific performance now because:

(a)   A party cannot seek the relief of specific performance under a vendor and purchaser’s summons taken out pursuant to section 12 of the Conveyancing and Property Ordinance (Cap 219) (“the CPO”);

(b)   The Purchaser has not shown that he is ready, willing and able to perform the Agreement now, as there is no evidence to show that he is financially capable of completing the sale if so ordered.

The issues

10.Given the above, the issues that I have determine are as follows:

(1)  Whether the Vendor had answered the Requisition satisfactorily on or before 4 January 2008.

(2)  If yes:

(a)   whether the Vendor had waived its right to terminate the Agreement by electing to affirm the same in continuing to attempt to answer the Requisition; or

(b)  whether the Purchaser should have been given a reasonable time which would have the effect of postponing the completion to beyond 15 January 2008.

(3)  If the answer to (1) is no, or if the answer to (2)(a) or (b) above is yes, whether the Purchaser is entitled to a decree of specific performance, in that:

(a)   whether such a relief is permissible under section 12 of CPO; and,

(b)  whether the Purchaser has shown by credible evidence that he is financially capable to complete the transaction now.

11.I will now deal with each of these issues as follows.

III.  Determination of the issues

Issue 1:   Whether the Vendor had answered the Requisition satisfactorily

The requisition and the answers

12.The Requisition was raised, amongst other requisitions, in AFN’s letter dated 19 December 2007.  It was set out in the letter as follows:

“Special Condition (9)(a) of the said New Grant stipulated (inter alia) that no structure erected on the lot shall contain more than two storeys nor exceed a height of 7.6 metres above ground level.  Occupation Permit No. NT55/86 showed that the [House] is a 3-storeyed house. Please send us written confirmation from the Director of Lands that the [House] is not in contravention of the said Special Condition (9)(a).”

13.Special Condition (9)(a) of the relevant New Grant provides as follows:

“(9) (a)       No structure erected or to be erected on the lot shall contain more than two storeys nor exceed a height of 7.6 metres above ground level and the plot ratio (as defined in Special Condition No. (9)(b) hereof) of any building or buildings erected or to be erected on the lot shall not exceed 0.4.  For the purpose of calculating the plot ratio the lot shall be deemed to contain an area of 4 475 square metres.”

14.Although the Requisition was raised on 19 December 2007, it was only on 3 January 2008 that LWL replied on behalf of the Vendor.  The relevant part of the answer is as follows:

“(c)      When interpreting the meaning of Special Condition 9(a) [my emphasis added], the object of interpretation is to confine a building to be erected not [sic] exceed a height of 7.6 metres above the ground level.  Accordingly, the stores [sic] thereof shall be calculated from the 1^st Floor to the 2^nd Floor above the ground level.  In Occupation Permit Memorial No. ST329027, the stores [sic] of a house follows [sic] the calculation from the Ground Floor (with part Ground Floor covers parking area) to the 2nd Floor.  Therefore, the captioned building defined in the said Occupation Permit falls within the definition of Special Condition 9 contained in the Government Grant.  Please refer to the Certificate of Compliance Memorial No. ST329028 which concludes compliance of all conditions specified in the Government Grant.  No contravention thereof had been committed.” 

15.LWL further stated in this letter that that they trusted that all the requisitions had been properly dealt with and answered to the Purchaser’s satisfaction.

16.AFN was not satisfied with the answer and continued to pursue the Requisition in their reply letter of the same date (i.e., 3 January) as follows:

“Special Condition (9)(a) of the said New Grant imposed two development restrictions:- (i) no structure erected on the lot shall exceed a height of 7.6 metres above ground level; AND (ii) no structure erected on the lot shall contain more than TWO  STOREYS.  With due respect, your interpretation of the said Special Condition (9) [my emphasis] and Occupation Permit cannot be right in the light of the fact that it was expressly stated in the Occupation Permit Memorial No. ST329027 the [House] is a 3-STOREYED house. Your reliance on the issuance of Certificate of Compliance Memorial No.ST329028 is futile, because the second paragraph of the said Certificate of Compliance expressly stated that it was issued without prejudice to the rights of the Government in respect of any antecedent breach of the said New Grant. Please send us written confirmation from the Director of Lands to prove that the erection of the [House] is not in contravention of the said Special Condition (9)(a).”

17.On the same date, LWL further replied as follows:

“Under Special Condition 9(a) [my emphasis], a 2 storeyed building would be built ABOVE THE GROUND LEVEL (the number of storeys could exclude the ground floor).  In the Occupation Permit, a 3 Floor/Level which is in fact not exceed a height of 7.6 metres above the ground leve.  If you wish to show that the captioned building was built over the high range of 7.6 metres as stipulated under Special Condition 9(a), please adduce evidence.” 

18.On 4 January (i.e, the Completion Date), AFN was still not satisfied with LWL’s above answer, and continued with the Requisition in their letter to LWL.  The relevant part of the letter stated:

“With due respect, we note that in order to deal with our requisition, you have given a big twist to the interpretation of Special Condition (9)(a) of the said New Grant.  The said Special Condition [my emphasis] never stated that a structure more than two storeys above ground level could be erected on the lot.  It only provided that no structure erected on the lot should contain more than two storeys.  According to the grammatical structure of the first clasue of Special Condition 9(a), the words ‘two storeys’ therein were not quantified by the phrase ‘above ground level’ appearing in the second clause of the same Special Condition.  To attain the twist in the interpretation of the Special Condition as proposed by you [my emphasis], the first clause needed to be re-drafted in clearer terms.  In order to answer our requisition, you are strongly advised to seek immediate assistance from the Director of Lands” 

19.Upon receipt of AFN’s above letter in pursuing the Requisition, and after the scheduled time for completion at 5:30 pm, LWL replied at around 6:58 pm on the same date^[4] as follows:

“The house erects on the lot consisting of 2 storeys above the ground level which is not exceed a height of 7.6 metres stipulated in Special Condition (9) of the New Grant No. 11755.  As you failed to adduce to us substantial evidence to support your allegation, and that so long as the Lands Officer or any other government department concerned has no objection to the issuance of the Certificate of Compliance aforesaid, your alleged breach of such Special Condition 9(a) by the grantee is also merely speculation.”

20.In the same letter, LWL insisted that they had answered all the requisitions properly and that good title to the House had been shown.  It further stated that the Purchaser had failed to complete on time and they were then advising the Vendor its position under the Agreement in relation to the Purchaser’s breach. 

21.As mentioned above, after some further exchanges of correspondence after the Completion Date, on 15 January 2008, LWL wrote to AFN stating that the Vendor exercised its right to terminate the Agreement and to forfeit the deposit.

The parties’ contentions

22.At this hearing, Mr C Y Li, counsel for the Vendor, contends that the above replies provided by LWL on behalf of the Vendor are clearly sufficient to answer the Requisition satisfactorily.  His submissions run as follows:

(1)  Under Special Condition 20(a)^[5] of the New Grant, it is provided that a car port built on the ground level may be permitted in addition to the number of storeys permitted under Special Condition (9)(a) (i.e., the two-storeys restriction).

(2)  At the same time, it is common ground that the ground storey of the House is a car port built on the ground level. 

(3)  In the premises, it must be obvious and self-evident that the House is not in breach of Special Condition (9)(a), and LWL’s answers are correct and sufficient in answering the Requisition.

(4)  It is not incumbent upon LWL to refer to Special Condition (20)(a) in their answers, since it was for AFN to read the New Grant (which was in their possession), including all the conditions provided in it, themselves and to come to their own interpretation of the relevant conditions. 

(5)  In support of his submissions, Mr Li relies on well known propositions laid down by Litton JA (as he then was) in Active Keen v Fok Chi-keong^[6] that:

(a)   The contractual duty to answer requisitions properly is not an onerous one, and all that is required of the vendor is candour and commonsense^[7].

(b)  If the matter of requisition is self-evident, the purchaser’s solicitors cannot insist on a fuller reply.  A requisition as to title is not an occasion for the parties’ to bandy propositions of law^[8].

23.Although not disputing the above legal principles relied on by Mr Li, Mr Lee Yee Hung, counsel for the Purchaser, principally argues that even taking the Vendor’s represent contentions:

(1)  The answers provided LWL are unsatisfactory since Special Condition (20)(a) on a proper construction is still not a proper answer to the requisition.  In particular, Special Condition (20)(a) provides that for the car port to be excluded from calculating the storey numbers as restricted under Special Condition (9)(a), a prior approval in writing of the Secretary for the New Territories is required. 

(2)  In any event, if the Vendor was really relying on Special Condition (20)(a), it should have referred it in the answers to enable AFN to properly respond to.  Failing to do so renders these answers insufficient and unsatisfactory in answering the Requisition.

Discussion

24.In determining whether the vendor’s replies constitute a satisfactory answer to the subject requisition, they must be viewed objectively in the context and the way in which they are given.  As said by Litton JA in Active Keen^[9], the question as to how good title is shown could not be answered in the abstract, and it depends upon the matter at hand.  

25.Having looked at in detail the materials and the answers to the Requisition placed before me, I am not satisfied that the LWL replies as set out above constituted a sufficient and satisfactory answer to the Requisition as submitted by Mr Li for the Vendor.  My reasons are as follows.

26.In my view, when properly and objectively read (in particular by reference to the words emphasized by me in the various quotes of the correspondence set out above), the replies in LWL’s various letters were the Vendor’s attempt to answer the Requisition by putting forward its interpretation of the meaning of Special Condition (9)(a) itself and alone. As far as I can see, this was also the way AFN had (rightly so in my view) understood the answers.

27.They were therefore not answers premised on a reading of Special Condition (9)(a) together with Special Condition (20)(a), as now submitted by the Vendor’s counsel.

28.Viewed in this way, these are not sufficient and satisfactory answers to the Requisition, as the Vendor’s construction of the meaning of Special Condition (9)(a)is in my view wrong. 

29.Further, even if, contrary to my conclusion above, by way of LWL’s letters, the Vendor were seeking to answer the Requisition in reliance on Special Condition (20)(a) as submitted by Mr Li, I am still not satisfied that they were sufficient or satisfactory:

(1)   For the same reasons as I have explained above, reading the AFN’s responses to these answers, LWL should have realized that AFN was at least under the misapprehension that the Vendor was merely relying on an interpretation of Special Condition (9)(a) alone to answer the Requisition. 

(2)   In such a situation, in order to properly discharge its duty (albeit a non-onerous one) to answer requisition satisfactorily and with candour, and in the absence of any suspicion that the Purchaser’s solicitors were not acting bona fide, I believe it is necessary for the Vendor’s solicitors to clarify the confusion by drawing the Purchaser’s attention specifically to Special Condition (20)(a).

(3)   In Lee Yuen Cheung v Chan Chi Ming (unrep, transcript, HCA 12747/97, 3 November 1998), the purchaser asked in his requisition for a copy of a letter of modification dated 15 August 1957, which formed part of the title documents.  Through various correspondences exchanged between the parties’ solicitors, a copy of that letter had in fact been provided under a stack of documents.  Yuen J (as she then was) held that vendor had failed to answer the requisition satisfactorily as it was clear from the communications between the parties that the purchaser did not realize that the letter had in fact been produced.  Her Ladyship further held that the vendor’s solicitors should have realized that the purchasers were acting under misapprehension and should have pointed out in reply that a letter that that been supplied was the required letter of modification[10]. 

Conclusion on Issue 1

30.For the above reasons, I conclude that the Vendor had failed to answer the Requisition satisfactorily by the Completion Date.  The Purchaser was therefore not in breach of the Agreement in not proceeding on complete on that day.  As the Purchaser has not accepted the Vendor’s breach in failing to answer the Requisition satisfactorily, the Agreement has been kept alive and the Vendor was not entitled to terminate the Agreement on 15 January 2008.  The Vendor’s said termination was thus invalid.

31.In light of my conclusion that the Vendor had failed to answer the Requisition satisfactorily, strictly speaking it is not necessary for me to deal with the issues on (a) whether the Vendor had waived its right to terminate the Agreement and had elected to affirm the same, and (b) whether the Purchaser was entitled to postpone completion until after 15 January 2008.  However, if I were wrong above in my conclusion, I would answer these two questions briefly as follows.

Issue 2(a):  Whether the Vendor had waived its right to terminate the Agreement and had elected to affirm the same

32.It is accepted by both parties that the general principles on waiver by election have been set out by the Court of Appeal in Large Land Investments Ltd v Cheung Siu Kwai Pansy [2002] 4 HKC 652.  In adopting The Kanchenjunga [1990] 1 Lloyd’s Rep 391, 397-399, Yuen JA summarized the principles at paragraph 15 as follows:

“15. The principles to be applied in this area of law are as follows:

(1) A waiver by election occurs ‘in the context of a binding contract, when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right, and he has to decide whether or not to do so. His decision, being a matter of choice for him, is called in law an election’ ( The Kanchenjunga at 398).

(2) It is a prerequisite of election that the party making the election must first be aware of the facts which have given rise to the existence of his right ( The Kanchenjunga at 398).

(3) It may be that the party must also be aware of his legal right of affirming or rescinding the contract when there has been a repudiation by the other party ( Peyman v Lanjani [1985] 1 Ch 457 — although this aspect was not disputed and therefore not considered by the House of Lords in The Kanchenjunga).

(4) Further, since a party who elects not to exercise a right which has become available to him is abandoning that right, he will only be held to have done so if he has so communicated his election to the other party in clear and unequivocal terms ( The Kanchenjunga at 398).”

33.Applying these principles, in determining whether there is any effective waiver or election, it is important to see whether the innocent party has communicated the alleged election or waiver to the party in default in clear and unequivocal terms.

34.In the present case, the Purchaser submits that the Vendor’s conduct in continuing in its correspondence to seek to answer the Requisition (albeit effectively by simply repeating and insisting on its previous answers) post the Completion Date, represents clear and unequivocal acts communicated to the Purchaser that the Vendor had waived its rights regarding the Purchaser’s breach and had elected to treat the Agreement as still alive.   As such, the Vendor was not entitled to terminate the Agreement on 15 January 2008.

35.With respect, for the following reasons, I do not accept the Purchaser’s submissions:

(1)  The mere fact that the Vendor sought to repeat its previous answers to the Requisition in correspondence after the Completion Date do not in my view amount to an unequivocal and clear conduct of waiver and election as submitted by the Purchaser.  Objectively construed, the same is equally consistent with an act on the part of the Vendor in trying to justify and maintain its claim that the Purchaser was in breach of the Agreement in failing to complete on time.   It is not uncommon that, after a fallen-through completion, each party through its respectively solicitors would still seek to state to the other side its case and position on whether a requisition has been sufficiently answered, or whether there was good title to the subject property. 

(2)  Moreover, in their letters^[11]sent to AFN between 4 January (after the scheduled completion time on that day) and 15 January (when they purported to terminate the Agreement), LML has repeatedly and expressly reserved the Vendor’s right in relation to the Purchaser’s breach.  In their letter dated 10 January 2008, LML also further expressly stated that “[n]othing herein should be treated as [the Vendor’s] agreement to allow any delay in completing the transaction as agreed”.

(3)  The above express reservations of the Vendor’s right in relation to the Purchaser’s breach and the express statement that there was no agreement to delay the completion as originally agreed are in my view inconsistent with any suggestion that the Vendor had clearly and unequivocably waived the Purchaser’s breach, and had elected to treat the Agreement as alive.   Cf also:  Large Land, supra, at paragraphs 37-46 per Yuen JA.

Conclusion on Issue 2(a)

36.In the premises, if I had held that the Vendor had answered the Requisition satisfactorily, I would have further concluded that the Vendor had not waived the Purchaser’s breach in failing to complete on time and had not elected to treat the Agreement as alive. 

Issue 2(b):  Whether the Purchaser was entitled to postpone the completion until after 15 January 2008

37.This can be dealt with quickly.

38.It is the Purchaser’s own evidence, as stated in AFN’s letters respectively dated 4 and 8 January 2008 (i.e., before and after the Completion Date), that completion should be postponed for 3 days after the Vendor had satisfactorily answered what they regarded as the then outstanding requisitions (which included the Requisition).  It is therefore their case that 3 days would represent a reasonable period of extension to complete the sale and purchase, when satisfactory answers to the Requisitions were provided.

39.As such, even on the Purchaser’s own case, if the answers provided by the Vendor on 3 and 4 January 2008 constituted satisfactory answers to the Requisition, it would have been reasonable for the Purchaser to have a 3 days’ extension from the Completion Date to complete.  That would have taken the time to 7 or 8 January 2008.  In that case, there is no question that the Purchaser was entitled to postpone the completion to beyond 15 January.

Conclusion on Issue 2(b)

40.For the above reasons, ifI had held that the Vendor had answered the Requisition satisfactorily, I would have also concluded that the Purchaser would not have been entitled to postpone the completion until after 15 January 2008. 

Issue 3(a):  Whether an applicant can seek an order for specific performance under a VP Summons

41.Vendor and purchaser’s summons are taken out under section 12(1) of CPO, which provides as follows:

“(1)     A vendor and purchaser of land may apply by petition or by originating summons to the court in respect of any questionarising out of or connected with any contract for the sale or exchange of land (not being a question affecting the existence or validity of the contract or relating to compensation payable by the Government or a public body), and the court may make such orderupon the petition or originating summons and as to costs as to the court appears just.” (emphasis added)

42.It is Mr Li’s submissions (for the Vendor) that section 12(1) of CPO should not be used to obtain specific performance.  He relies on a passage in the book The Hong Kong Conveyancing & Property Ordinance[12] (1988) to support his submission.  In commenting on this statutory provision, the learned author says at page 39 as follows:

“The summons should not be used to obtain recission or specific performance but it appears that the courts may be able to order recission of the contract although not the payment of damages or specific performance (Re Higgins and Percival (1881) 59 LT 213, Re Walker and Oakshott’s Contrct [1901] 2 Ch 383 and Barber v Wolfe [1945] Ch 187).”

43.In considering this submission, the starting position must be the words of the statutory provision themselves.  On what kind of relief that the Court could make upon hearing a V-P summons, the words of section 12 of CPO are drafted in very wide terms, which provides that the Court could grant “such order” which appears to the Court to be “just” in determining “any question” arising out of or connected with “any” contract for sale. 

44.In my view, on a proper construction of the ordinary meaning of these words as used in the provision, the legislature intended to give the Court a very wide power to order any relief as it thinks fit after considering all the circumstances of the case, and this must encompass and include the Court’s power to grant an order for specific performance if the Court regards it as just to do so.  There is nothing in the section which would indicate that the legislature had intended to impose any restriction or limitation on the nature and kinds of relief that the Court could in principle grant^[13].

45.With the greatest respect, the above quoted commentary made in The Hong Kong Conveyancing and Property Ordinance is in my view inconsistent with the clear meaning of section 12 of CPO, and as far as I can see, the authorities cited therein do not support the sweeping proposition (if this is in fact the proposition the author seeks to make) that the courts does not have any jurisdiction or power to order specific performance upon hearing an application made under section 12. 

Conclusion on Issue 3(a)

46.I therefore reject Mr Li’s submissions and conclude that the Court has the necessary jurisdiction and power under section 12 of CPO to grant a decree of specific performance, if it appears to the Court that it is just to do so. 

Issue 3(b):  Whether no specific performance should be ordered as the Purchaser has not shown that he is financially ready and capable to complete the transaction now

47.Mr Li for the Vendor submits that a claimant for specific performance must show that he is ready, willing and able to complete the transaction not only at the original time of completion but also as at the time of the order, if one is to be made:  Davis v Spalding (1974) 231 EG 373 per Walton J.    See also:  Snell’s Equity (31^st ed), para 15-36.

48.Although there is evidence that the Purchaser had at the time of the original completion date arranged the necessary mortgage finance to complete, Mr Li submits that given the falling market, this is no evidence before the Court to suggest that the Purchaser is to be provided with the same mortgage finance now to cover the outstanding balance of the purchase price (in the sum of $29,700,000) so as to enable him to complete the transaction.  As such, the Purchaser has failed to show that he is ready and able to complete the transaction now and no specific performance should be ordered.

49.Faced with these submissions, and without disputing the legal requirements that the claimant for specific performance should show that he is ready, willing and able to complete at the time of order as submitted by the Vendor, Mr Lee for the Purchaser accepts at the hearing that there is no evidence before the Court of the Purchaser’s financial capability to complete now if specific performance is to be ordered.  Mr Lee however says that the lack of evidence is purely due to the Vendor’s failure to make it clear in its affirmation that it is also opposing the grant of specific performance on this ground.  Mr Lee further says that it is his instructions that the Purchaser is financially wealthy, cash rich, and is in a position to complete the transaction now without the need of any financial assistance from the banks.  Mr Lee then asks for time to file further evidence to support the same.

50.At the end of the hearing, I granted leave to the Purchaser to file further evidence on his financial capability to complete the transaction if specific performance was to be ordered, with leave also given to the Vendor to file any rebuttal evidence. 

51.Pursuant to the leave, the Purchaser filed his 3^rd affirmation on 23 September 2008, and the Defendant filed its rebuttal evidence on 30 September 2008 under the Affirmation of Chan Wai Yuen.

52.The Purchaser’s evidence on his financial capability to complete now is short and as follows:

“4. I am a 80% majority shareholder of Yongkai Sugar Company Limited (永凱糖業有限公司) (“Yongkai”), a private company in the Mainland.  The profits earned by Yongkai for the preceding twelve months were over Renminbi 100 million.

5. Should the Court decree specific performance, I would be ready and able to complete my purchase of the Property.  I have recently enquired with the Bank again about the mortgage loan on the Property.  The response from the Bank was very positive.  However, the Bank informed me that they had to conduct a valuation on the Property again by the time of drawdown of the mortgage loan.  I can inform the Court that even if no bank is prepared to advance any mortgage loan to me (which is beyond imagination), I still have sufficient cash in the Mainland to be remitted to Hong Kong to pay up the balance of purchase price in the sum of HK$29,700,000.00.”

53.Looking at this evidence, there is nothing to suggest that the Purchaser can obtain the necessary mortgage now to complete the purchase of the House.

54.Further, no documentary evidence, such as the incorporation documents and the audited accounts, financial reports or management accounts of the Yongkai Sugar Company Ltd are provided by the Purchaser to support the assertions of his 80% ownership of the company and its RMB100 million profit position. 

55.Moreover, even if the Purchaser is a 80% shareholder of Yongkai, and the company has made some RMB100 million profit over the last 12 months period, the Court is still in the dark as to whether (a) the Purchaser, merely as a majority shareholder, is entitled to simply withdraw money from the company for his own personal use in completing the purchase of the House, and (b) the said profit (and how much of it) is or could be made available to the Purchaser given that the company is presumed to be still operating.

56.In premises, even taking his evidence to the highest, I am not at all satisfied that the Purchaser has shown to me that he is financially capable and ready now to complete the purchase of the House by paying $29,700,000.

Conclusion on Issue 3(b)

57.For the above reasons, although I have concluded that the Vendor has failed to answer the Requisition satisfactory and that its purported termination of the Agreement on 15 January 2008 was invalid, I am not satisfied that I should order specific performance of the Agreement as sought by the Purchaser. 

58.In lieu of specific performance, the Purchaser is however entitled to damages and the return of the deposit. 

IV.  Conclusion

59.In light of my above determination of the issues, I will make the following orders in the Originating Summons:

(1)  A declaration that the Vendor had failed to answer the Requisition satisfactorily.

(2)  A declaration that the Vendor’s termination of the Agreement on 15 January 2008 was invalid.

(3)  The Vendor shall forthwith return the deposit of $3,300,000 to the Purchaser, with interest at judgment rate on it from today^[14] until full payment.

(4)  The Vendor shall pay the Purchaser damages in lieu of specific performance, the quantum of which is to be assessed[15].

(5)  A declaration that the Plaintiff is entitled to an equitable lien on such interest held by the Vendor in the House in relation to the deposit and damages, until payment of the same by the Vendor to the Purchase is made.

60.Given that the Purchaser has succeeded in his application, I further make an order nisi that costs of the Originating Summons be to the Purchaser to be taxed if not agreed.  Unless any of the parties applies to vary it in writing, the order nisi shall be made absolute 14 days from the date of this judgment.

Mr. LEE Yee Hung, instructed by Messrs Arculli Fong & Ng for Plaintiff.

Mr. C.Y. LI, instructed by Messrs Li, Wong, Lam & W.I. Cheung for Defendant.

[1] Messrs Arculli Fong & Ng.

[2] Messrs Li, Wong & Lam

[3] Although three requisitions were set out in the affirmation filed in support of the Originating Summons, the Purchaser confirmed subsequently that he was only relying on the Requisition in support of the present application.

[4] By a letter faxed to AFN.

[5] Special Condition (20)(a) provides as follows: “Subject to the prior approval in writing of the Secretary for the New Territories, spaces or car ports shall be provided within the lot for the parking of motor vehicles at the rate of 2 cars for each flat or for each residential unit erected or to be erected on the lot.  Car ports under the building or buildings at ground level may be permitted in addition to the number of storeys permitted under Special Condition No. (19)(a) hereof, and the area at ground level designed and used solely for this purpose will not be taken into account for the purpose of calculating gross floor area stipulated in Special Condition No. (9)(b) hereof.  Neither the parking spaces so provided nor the said car ports shall be used other than for the purpose of parking private motor vehicles belonging to the residents of the building or buildings erected or to be erected on the lot.”.

[6] [1994] 1 HKLR 396 (CA).

[7] At p 413:30.

[8] At p. 407:5-10.

[9] At p. 40:45.

[10] See: paragraphs 23 to 29 of the Yuen J’s Judgment, at pp 6-7 of the Transcript.

[11] They are respectively dated 4 and 10 January 2008.

[12]A work by Ms Sarah Nield.

[13] Although no contention as to jurisdiction was raised in that case, neither the court at first instance nor the Court of Appeal in Pacific South (Asia) Holdings Ltd v Million Unity International Ltd [1997] HKLRD 613; [1997] HKLRD 1238 (CA), had found it questionable to grant an order of specific performance in favour of the purchaser after determining in its favour in its vendor and purchaser’s summons.  This shows that both courts did not find anything from the plain reading of section 12 of the CPO which gave rise to any doubt on the court’s power to grant specific performance in the right case. 

[14] I will only order interest from the date of judgment, since the Purchaser has been seeking the relief of specific performance, which is disallowed by me today.  

[15] The Vendor has not made any objection to this alternative relief sought on the basis of damages to be assessed, as set out in the prayers of the Originating Summons.