Wong Yuk Ying v. Chan Pui Shan May
Read the full judgment text of DCMP 688/2013 on BabelCite. This District Court judgment was delivered on 17 September 2013.
1. On 11 October 2012, the defendant (as purchaser) entered into a provisional sale and purchase agreement with Win Concept International Limited (as vendor) (the “Head Vendor”) in respect of the property known as Workshop C on 22 nd Floor, Superluck Industrial Centre (Phase 1), Nos 45-53 Sha Tsui Road, Tsuen Wan, New Territories (the “Property”). The Property was partitioned into three rooms, namely Rooms C1, C2 and C3. All three rooms were subject to tenancies. The one for Room C2 expires on
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DCMP 688/2013 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 688 OF 2013 --------------------------------
--------------------------- JUDGMENT --------------------------- Background 1.On 11 October 2012, the defendant (as purchaser) entered into a provisional sale and purchase agreement with Win Concept International Limited (as vendor) (the “Head Vendor”) in respect of the property known as Workshop C on 22nd Floor, Superluck Industrial Centre (Phase 1), Nos 45-53 Sha Tsui Road, Tsuen Wan, New Territories (the “Property”). The Property was partitioned into three rooms, namely Rooms C1, C2 and C3. All three rooms were subject to tenancies. The one for Room C2 expires on 28 February 2015 (after the completion date of 15 January 2013). Those for Rooms C1 and C3 were supposed to “expire” on 30 November 2012 (before completion). However, for the exact meaning of “expire”, one has to refer to the provisions of the tenancy agreements, which will be discussed below. The terms of the tenancy agreements for Rooms C1 and C3 are identical. Only the tenancy agreements for Rooms C1 and C3 are relevant for this case. I shall refer to them collectively as the “Tenancies”. 2.On 24 October 2012, formal agreement for sale and purchase (the “Principal SPA”) was entered into between the Head Vendor and the defendant. The Principal SPA provides that the Property is sold subject to the Tenancies (Clause 17(a) and Clause 33). 3.On 31 October 2012, formal agreement for sub-sale and sub-purchase (the “Sub-SPA”) was entered into between the plaintiff (as vendor and confirmor) and the defendant (as sub-purchaser). The Sub-SPA provides inter alia:-
4.It is apparent that the Sub-SPA was drafted based on certain standard template without great attention to the peculiarity of the transaction. Clause 29(a) provides that “the Property is sold subject to and with the benefit of a tenancy agreement as set out in Part IV of the Schedule” (my underline). In fact, there are three tenancy agreements (one for each partitioned room) set out in the schedule. One could only take it that what clause 29(a) actually means is that the sale is subject to all three tenancy agreements. Copies of those agreements are attached to the Principal SPA. The Requisitions and Answers 5.On 21 December 2012, title deeds in respect of the Property were delivered to the plaintiff’s solicitors, Messrs Tam Pun Yipp (“TPY”). On 27 December 2012, TPY sent a letter to Messrs Kent Tam & Co (“KT&Co”), the defendant’s solicitors, raising certain requisitions, including requisition 4 (“Requisition 4”) as follows:-
6.On 8 January 2012, KT&Co replied to the requisitions. The reply to Requisition 4 is as follows:-
7.By letter dated 10 January 2013, TPY wrote to KT&Co, stating Requisition 4 remained unanswered. 8.To that, KT&Co replied on 11 January 2013, stating that “We do not consider that we have failed to reply [Requisition 4]…” and reiterated that “Your client as the Purchaser of the Property shall purchase the said property subject to the [Principal SPA] between the Head Vendor and [the defendant] and also subject to the said tenancy agreements, in particular, all rights and obligations thereof…”. Further, by KT&Co’s 2nd Letter of 11 January 2013, it was stated that “You fully understand that our client is a Confirmor when you entered into the present sale and purchase. Our client has no right to evict the Tenants under the tenancies agreements…. In any event, there is no term in the Agreement for Sale and Purchase between our respective clients that our client shall deliver vacant possession of the said Room C1 and C3 to yours upon completion. Our client is only obliged to sell the same to yours subject to the existing tenancies.” It is also stated in the same letter that, “We are given to understand by the solicitors of the Head Vendor verbally that the properties (Room C1 and C3) will be subject to monthly tenancy between the Head Vendor and the Tenants thereof in the same terms and conditions of the respective tenancy agreements.” 9.What the Head Vendor informed KT&Co appears to be a mistake in so far as it was suggested that a new tenancy agreement was entered into. The situation was subsequently clarified by a letter dated 14 January 2013 from the Head Vendor’s solicitors Messrs. Joyce Chan & Co. (JC&Co) (which was enclosed to TPY in KT&Co’s letter of the same date), confirming:-
10.To that, TPY replied by letter on the same day that “Concerning the interpretation on the Principle Agreement for Sale and Purchase between your client and the head vendor, we are not in proper and appropriate position in commenting”. TPY took the position that no good title had been shown “Since the tenancies had been expired and thus your client is obligated to deliver a vacant possession instead of a law suit” and “As mentioned in the letter by JC&Co, the tenant is now refused to move out under an expired tenancy, without doubt, it absolutely is a blot and possibility of litigation to our client as purchaser.” 11.Based on these reasons, the plaintiff refused to complete on 15 January 2013. The Plaintiff’sCase – Implied Term 12.In paragraph (1) of the Amended Originating Summons, the plaintiff asks for “a declaration that the defendant is in breach of an implied condition of the Sub-SPA by failing to deliver vacant possession of Rooms C1 and C3 of the Property by completion (i.e. 15 January 2013).” 13.Neither the Principal SPA nor the Sub-SPA expressly provided for delivery of vacant possession on completion. The crux of the plaintiff’s case is that this obligation on the part of the defendant is to be implied into the Sub-SPA (the “Implied Term”) despite it was not expressly mentioned in it or in the Principal SPA. 14.A day before the hearing, I invited counsel to address me on the effect of Clause 21 of the Sub-SPA, as I did not see it discussed in their written opening submissions. Clause 21 of the Sub-SPA provides that:-
15.Mr Siu for the plaintiff purchaser agrees that it is an “entire agreement clause”, which will have the following effects on the agreement, according to the case of Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31, at 33:-
16.However, an entire agreement clause is not an absolute bar to implying terms into a contract. Mr Siu refers me to the principles stated in McMeel: The Construction of Contracts (2nd ed 2011) at §11.105:-
17.I agree with these the principles. Hence, if Mr Siu is arguing for the Implied Term on the ground of custom or usage, he is bound to fail (Principle 1). Statutory implied terms are not relevant in this case (Principle 2). So, the question for Mr Siu is whether the Implied Term is necessary to make the contract, the Sub-SPA, work (Principle 3). In other words, if it is necessary, in the business sense, to give efficacy to the contract, without which the contract will not work. If it is, then the term will be implied. Chitty on Contracts (31st Ed 2012) at §§13-006 & 13-009. 18.As an example of the court implying term into a conveyancing contract that is necessary to make the contract work, Mr Siu refers me to the case of Whale View Investment Ltd v Kensland Realty Ltd [2000] 2 HKLRD 261. In that case, the court found that it was an implied term that the vendor should give its directions for split cheques in reasonable time, notwithstanding that there was an entire agreement clause in the agreement. Hence, Mr Siu argues, an entire agreement clause such as clause 21 in the Sub-SPA would not exclude implied terms which are necessary to make it work. 19.This contention of Mr. Siu is correct. However, turning back to this case, apart from his heavy reliance on the decisions of the CFI and CA decisions in Strong Beauty Ltd v Gain Legend Industries Ltd [2008] 1 HKLRD 570 (CFI), CACV 337/2007 (unreported, 25 February 2008), which I shall deal with below, I am afraid Mr Siu has not been able to come up any or any strong reasons to explain why the Implied Term is necessary to make the Sub-SPA work. Mr. Siu did not refer me to anything in the evidence filed to support his position. In passing, it may perhaps be noted that at the beginning of the hearing, I asked the parties if they were content to proceed with the hearing purely on affidavit evidence now that the Implied Term, and possibly contractual interpretation, seemed to be the central issues and usually those issues are fact sensitive. Both counsel confirmed to me that they were content to rely solely on affidavit evidence. 20.As any practitioners with some experience in conveyancing transactions would know, sale and purchase agreements for property could be of infinite variety. The sale may be subject to very many different kinds of conditions, it may even be subject to encumbrances that seriously detract from the value of the property. On the other hand, there are contracts that specifically require the vendor to warrant that the subsisting tenancies are valid and will continue to be in force. All these are for the parties to agree. I find it difficult to accept that, in general, without the Implied Term, a sale and purchase agreement for property cannot work. Mr Siu has not been able to point to any special circumstances in the present case that make it necessary for the Implied Term to be in existence to make the Sub-SPA work. The StrongBeauty Case 21.As this case bears considerable similarities to the present case and is heavily relied on by Mr Siu, I shall deal with it in some details. 22.In the Strong Beautycase, the agreement was for the sale and purchase of a five-storey property. It provided that save and except the ground floor and cockloft of the property of which vacant possession will be delivered to the purchaser on completion, the property is sold subject to existing tenancies the particulars of which are set out in the third schedule thereto. The said third schedule identified five tenancies. The one in respect of the fifth floor would come to an end on 6 October 2006. The original completion date was 31 August 2006 but the parties later agreed to extend it to a date on or before 31 October 2006. Hence, by the extended completion date, the tenancy would have expired. 23.On appeal (CACV 337/2007), the Court of Appeal, endorsing the decision of the CFI by Recorder Ho, ruled that as the agreement made no express provision to cater for the situation which arose, of a tenancy to which the sale had been subject coming to an end prior to the date of completion, the ‘general rule’ that the vendor has to deliver vacant possession applied. 24.Mr Siu argues that the situation in Strong Beauty is exactly the same as that in the present case. The Sub-SPA made no express provision to cater for the situation where the tenancies for Rooms C1 and C3 would actually come to an end before completion on 15 January 2013. Hence, Mr Siu submits it is necessary for this court to imply terms into the Agreement to cater for this situation. Such an implied term is not based on custom, usage or pre-contractual negotiation, but on necessity. 25.At the hearing I asked Mr Siu if I was bound to follow the authorities of the Strong Beauty judgments in the CFI and CA. Mr Siu fairly conceded that as it is a matter of contractual interpretation, each case has to be decided on its particular facts, though, he submitted, because of the strong similarities between the two cases, this court should hold in favour of the Implied Term. 26.With respect, on analysis, I do not find Strong Beauty to be of help to Mr Siu. The first distinguishing factor is that there was not an ‘entire agreement clause’ in that case, at least it was not referred to in the judgments and did not seem to have been relied on by counsel for the vendor in that case. In Strong Beauty, the court approached the case as a matter of construction of agreement. In the key passage in his judgment, the learned Recorder said:-
27.Hence, the courts in Strong Beauty were concerned with the proper construction of the agreement from the wording and circumstances of the case. The purchaser in that case did not have to overcome any entire agreement clause or show necessity for the term to be implied. 28.Mr Ko for the defendant put forward a further argument to distinguish the Strong Beauty case. He points out that Strong Beauty is not a case concerned with a sub-sale by a confirmor. As pointed out by Le Pichon JA in para13 of the CA judgment:-
Interestingly, the words “subsales apart” were added by Le Pichon JA in her endorsement of the learned Recorder’s proposition without any explanation. In any event, Mr Ko argues, as the Sub-SPA involves both a sub-sale and a provision for sale “subject to tenancy” – there is no room for the term of vacant possession to be implied. 29.Whilst I agree with Mr Ko’s position, it is not merely because the case before me is a confirmor sale rather than a normal sale as in the Strong Beauty case. In my view, ultimately it is a matter of implying term by necessity or contractual interpretation. However, as a confirmor is not necessarily in possession of the property when the sub-sale completes (because the head agreement might not have completed), it would be even harder to imply an obligation or undertaking to deliver vacant possession at completion or sometime later. But there is no rule which states that a confirmor could not undertake to procure the sub-purchaser to have vacant possession eventually, perhaps taking on a risk that he might not be able to do so. It is something up to the parties to negotiate and agree. Contractual Interpretation 30.Even if I put aside the issues of the entire agreement clause and necessity and to approach the case as a matter of construction only, I would still hold against the plaintiff for the following reasons. 31.Firstly, what the learned Recorder said in paragraph 13 of his judgment, which is endorsed by the Court of Appeal and formed the basis of both judgments, has to be seen in its context. At my suggestion, counsel dug out the authorities referred to in that paragraph. They amounted to no more than the very general proposition stated by the learned Recorder, ie, “as a general rule a purchaser is entitled to vacant possession of the property on completion in the absence of any contrary provision in the contract.” Those authorities did not actually explain why that is the case, how strong such a general rule is, what amounts to “contrary provision”, and how explicit such “contrary provision” needs to be in order to override the “general rule” or “prima facie” position. 32.For example, Barnsley’s said “Existing tenancies should be revealed, for in the absence of any contrary stipulation, the purchaser is entitled to vacant possession on completion.” Emmet(the updated January 2012 edition, para 6.005) said, “Where a vendor expressly or impliedly contracts to convey the fee simple free from incumbrances, it is, in principle, a term of the contract that the purchaser shall on completion be put into actual (and not constructive) possession…. Nevertheless, in practice the question is really one of the intention of the parties as shown by the contract…” (my underline) 33.Hence, it seems to me clear that paragraph 13 of the learned Recorder’s judgment could not be taken out of the context and applied dogmatically to create a presumption in favour of the Implied Term. In any event, such a presumption, if it ever exists, is of questionable strength. In fact, the learned Recorder in the Strong Beauty case went on to analyze the facts of the case and the provisions of the agreement to consider whether it was the intention of the parties that the vendor should deliver vacant possession on the extended completion date. 34.Turning to the Sub-SPA in this case, I find the following provisions to be inconsistent with the existence of the Implied Term. 35.First, one may ask a common sense question: if vacant possession were to be delivered to the purchaser for Rooms C1 and C3, why is it necessary to have clause 29(a) of the Sub-SPA which provides that the sale is subject to the Tenancies and have the particulars of the Tenancies set out in the agreements and copies attached? If vacant possession were to be delivered, the Tenancies should become irrelevant to the parties. It is noted that the same question could not be asked of the Strong Beauty case, because in that case, the tenancy in question did not expire on the original completion date, it only expired before the extended completion date. That was why the original agreement was subject to tenancy. But when the parties agreed to the extension in that case, no specific provision was made to deal with the tenancy, thus giving room for contractual interpretation by the courts to ascertain the real intention of the parties regarding what was to happen on the extended completion date. This, in my view, is another important distinguishing factor that differentiates this case from the Strong Beauty case. 36.Doing justice to Mr Siu’s diligence, I shall deal with his answer to this ‘common sense’ question. He argues that:-
37.It is fair to say that this argument seems to be an ex post facto construction of Mr Siu. It is apparent that not much attention had been paid to the details of the terms of the Tenancies when the parties entered into the Sub-SPA. They were not referred to in the requisition correspondence of the parties. Mr Siu’s above argument did not appear in his written opening and copies of the Tenancies in the hearing bundle are hardly legible. Apparently, this argument was constructed by Mr Siu in his attempt to answer the common sense question which was raised in Mr Ko’s written opening submission. 38.In my view, clause 2 of the Tenancies actually provides ammunition to defendant rather than the plaintiff. Its full provision is as follows:-
39.My first observation is that the so-called option is not really an option as it is subject to the agreement by both parties on the terms of the renewal. Hence, Mr Siu’s argument falls for that. Secondly, this clause provides that when the term expires, and if either side wants to terminate, they have to give one month’s notice to the other side. All in all, this clause highlights the fact that the Tenancies are not to be automatically terminated after two years. The ‘option’ might be exercised, as suggested by Mr Siu; and either party has to give one month notice if they want to actually terminate the tenancy. The necessary implication is that if neither party gives notice, the tenancy will continue. All these should have alerted the purchaser to the possibility that the premises may not be vacant when the two year term “expires” on 30 November 2012, not to say the inherent possibility of a tenant refusing to move out even if the Tenancies have been absolutely terminated. 40.The Sub-SPA is subject to the Principal SPA. Nothing in the Principal SPA provides that the Head Vendor must take steps to absolutely terminate the tenancy and deliver vacant possession; and nothing in the Sub-SPA requires the sub-vendor (the Defendant) to procure the Head Vendor to do so. The closest provision one could get is clause 29(b) of the Sub-SPA which provides that “The [defendant] and/or the Head Vendor shall not be entitled to agree or permit any change in the terms and conditions of the tenancy or its termination.” One could hardly derive from this clause an obligation to procure an absolute termination of the tenancy and the moving out of the tenant. Exercising the ‘option’ or not giving the one month notice under clause 2 of the Tenancies could not be said to be a breach of clause 29(b). Further, it should be noted that clause 29(b) did not bind the Head Vendor as it is not a party to the Sub-SPA; and it has no effect on the defendant as she is not a party to the Tenancies. In short, clause 29(b) does not assist the plaintiff purchaser’s argument at all. 41.On the other hand, Clause 37 of the Sub-SPA provides that:-
This is a provision mirroring a similar provision (Clause 33) of the Principal SPA. It is clear from this clause that the parties contemplated that the Tenancies may well be subsisting at the time of completion, and if they were not, the purchasers could not use that as a ground to refuse to complete. It is further noted that in the schedules to the Principal SPA and Sub-SPA setting out particulars of the tenancy, no termination date was set out. Only the amounts of rent and rental deposit appear in the schedule. Again, the reasonable inference is that the parties are more concerned about the rent and rental deposit rather than the termination of the Tenancies and delivery of vacant possession. 42.In fact, clause 29(a) of the Sub-SPA went on to provide that “… The Vendor shall, on completion of the sale and purchase herein, procure Head Vendor to account and transfer to the Purchaser the rental deposits as set out in Part IV of the Schedule….” This provision is hardly consistent with the obligation to deliver vacant possession. 43.All in all, as a matter of contractual interpretation, analyzing the structure and provisions of the Principal SPA and Sub-SPA, it is abundantly clear that there was no obligation to deliver vacant possession on the part of the defendant. Failure to answer requisition in time? 44.The above should be sufficient to dispose of this matter. Yet the plaintiff raised a further or alternative ground that the defendant has not satisfactorily answered the requisition in time even though there might be a good answer to it. I see little merit in such argument as I have found that the requisition regarding vacant possession is, as a matter of contract, fundamentally misconceived. Nevertheless, I shall deal with such argument shortly. 45.The applicable test is summarized by the Court of Appeal in Summit Link Ltd v Sunlink Group (HK) Co Ltd [2000] 2 HKLRD 724 at 732D:-
46.As made clear by the Court of Appeal in Summit Link Ltd, what is and what is not reasonable is highly fact sensitive. The plaintiff had never raised in the Originating Summons and Affirmations in support thereof the allegation that the requisition was not answered within a reasonable time. Indeed, it was never a ground put forward by the plaintiff in refusing to complete. 47.In any event, in my view the defendant had answered the plaintiff’s requisition within a reasonable time in the circumstances of the case. The only possible complaint that the plaintiff can have is that the clarification of the state of Tenancies of Rooms C1 and C3 came on 14 January 2013, which was one day before completion. However, the course of correspondence between the respective solicitors shows that the plaintiff did have reasonable time to digest the contents of the letter and did make further requisitions. The issue involved is simple, namely a tenant overstaying after the expiry of the tenancy agreement. It does not involve any investigation into documents or further enquiries – the only relevant documents are the Tenancy Agreements and the provisions of the Principal SPA and Sub-SPA, which the plaintiff had in possession all along. Reasonable time in the circumstances is “hours and not days”. The transaction fell through because of the erroneous stance insisted by the plaintiff in demanding vacant possession, not because the requisition was not answered satisfactorily. Conclusion 48.In conclusion, the plaintiff’s originating summons is dismissed with costs. Costs 49.I have asked both parties to submit a statement of costs for gross sum assessment. The plaintiff claims a total of HK$181,340. The defendant claims HK$123,503.40. As I do not discern any significant difference in the amount of work required of the plaintiff and the defendant in preparing for the case, it appears to me that the defendant’s claim is a reasonable amount. Yet I would deduct HK$5,000 from the defendant’s claimed amount to reflect the costs wasted on their allegation concerning the plaintiff’s motive in repudiating the Sub-SPA – because of the Government’s newly introduced measures to combat property speculation. I note that counsel on both sides have wisely refrained from referring me to those allegations in their submissions. An Observation 50.Confirmor transactions are complicated and wrought with risks, even more so when it is subject to tenancy. Great care need to be taken in drafting the contract and attending to its implementation. The contract needs to be tailor-made to truly reflect the parties’ intention. Standard template for contracts could not be overly relied on. All relevant documents including the head agreement, any tenancy agreement and the title documents must be studied carefully. I observe that in this matter, the purchaser’s solicitors charged HK$4,000 inclusive of disbursements for acting in the transaction. Not only did they approve the Sub-SPA, approve the title documents and attend to the (aborted) completion, they also wrote numerous letters raising requisitions. Whilst I shall refrain from commenting on the purchaser’s solicitors’ pricing policy, I could only hope that in future, conveyancing practitioners could fully appreciate the risks and demands of the transactions they are asked to handle before accepting instructions. 51.I thank both counsel for their helpful submissions.
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Cases cited in this judgment
Further hearings and rulings under DCMP 688/2013