Sun Champ Investment Ltd v. Green Leaves Trade Investment Ltd

DCMP 706/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 706 OF 2013

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JUDGMENT

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1.This is a vendor and purchaser summons taken out by the plaintiff, who is the purchaser of the property in question whereas the defendant is the vendor. 

BACKGROUND

2.By a Provisional Agreement for Sale and Purchase dated 21 January 2013, the plaintiff agreed to purchase and the defendant agreed to sell the property known as “ALL THAT one equal undivided 6^th part or share of and in ALL THAT piece or parcel of ground registered in the Land Registry as SECTION P OF LOT No 2031 IN DEMARCATION DISTRICT No 449 (REAR PORTION ON 1/F, NO 136 CHUNG ON STREET, TSUEN WAN, NEW TERRITORIES) (“the Property”) in consideration of HK$2,000,000 subject to its existing tenancy and the terms and conditions contained therein (“the Agreement”).

3.Upon signing of the Agreement on 21 January 2013, the plaintiff paid an initial deposit of HK$50,000 to the defendant in accordance with Clause 2(a) of the Agreement.  

4.The Agreement contained inter alia the following terms and conditions which are material to the present proceedings:-

(a)   Clause 2(b) provides that upon signing of the Formal Agreement for Sale and Purchase (“the Formal S&P Agreement”) on or before 1 February 2013 further deposit shall be paid in the sum of HK$150,000;

(b)   Clause 2(d) provides that balance of the purchase price shall be paid upon completion on or before 1 March 2013 (“the Completion Date”);

(c)   Clause 3 provides that the Formal S&P Agreement shall be signed on or before 1 February 2013 “if the terms thereof shall have been agreed to by both the Vendor and the Purchaser”;

(d)   Clause 7 provides that the Property is to be sold to the plaintiff free from any encumbrances;

(e)   Clause 9 provides that should the defendant after receiving the deposit paid under the Agreement fail to complete in the manner therein contained the defendant shall immediately compensate the plaintiff with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit and the purchaser shall not take any further action to claim for damages or to enforce specific performance;

(f)    Clause 10(a) provides that in consideration of the service rendered by the estate agent, the estate agent shall after the Agreement be entitled to receive HK$20,000 from the purchaser as commission and such sum shall be paid not later than 1 March 2013.

5.Following the signing of the Agreement, the plaintiff instructed Messrs Wong, Fung & Co (“WF”) to act on its behalf while Messrs Darin Leung & Partners (“DLP”) was instructed by the defendant to act as its solicitors in the transaction.  On 22 January 2013, the plaintiff issued a cheque in the sum of HK$150,000 in favour of WF as intended payment for the further deposit payable under Clause 2(b) of the Agreement.

6.On 25 January 2013, WF issued a letter to DLP asking for the draft Formal S&P Agreement and all title deeds and documents of the Property for their approval.

7.On the same day, DLP issued a letter to WF enclosing their draft Formal S&P Agreement for WF’s approval.  It should be added here that the letter although dated 25 January 2013 was only faxed to WF at 15:03 the next day, ie on 26 January 2013 (which was a Saturday). 

8.The draft Formal S&P Agreement was returned to DLP by WF with amendments under cover of WF’s letter dated 29 January 2013.  In paragraph 2 of the said letter, it has been expressly stated by WF that “If our amendments are acceptable to your client, kindly let us have the fresh Agreement for Sale and Purchase in duplicate with our amendments incorporated therein for our further action at your earliest convenience.”

9.Notwithstanding the above, DPP issued a letter dated 30 January 2013 to WF informing WF that DLP “have no further instructions to act for the abovementioned Vendor to deal with the above Property.”  However, the said letter was only faxed to WF at 19:24 in the evening of 30 January 2013.  It did not come to the attention of the solicitor who handled the case on behalf of the plaintiff at WF the next morning, ie on 31 January 2013.

10.On 1 February 2013, in view of the defendant’s termination of the service of DLP shortly before the scheduled date of the plaintiff’s further deposit specified under the Agreement, WF tendered payment of the further deposit of HK$150,000 on behalf of the plaintiff by way of inserting a solicitor’s cheque issued by WF drawn in favour of the defendant.  The same was sent to the defendant at its registered address.  At the end of the letter, WF reminded the defendant that “You are reminded to observe perform and act in accordance with the terms and conditions of the Provisional Agreement within the time limit described therein.”  

11.On the same day, WF arranged to have the Agreement stamped and on 4 February 2013 delivered the duly stamped Agreement for registration.

12.At about 13:10 on 8 February 2013, WF received a letter by fax (without enclosures) from DLP dated 7 February 2013 stating that DLP “have instructions to act for the Vendor to deal with the sale of the above property.” DLP also stated that they “enclosed herewith our re-engrossed Agreement for Sale and Purchase (in duplicate) of the above property incorporating your amendments as accepted by us for your client’s signatures.”, although those enclosures were not delivered to WP until sometime later by hand on that day.

13.By a letter dated 18 February 2013, DLP delivered the title deeds and documents of the Property to WP.  However, as revealed by the time chop appeared on the cover letter, the title deeds and documents were actually delivered to WP on 19 February 2012 at 16:43.

14.As is clear from the above history, the parties had never entered into any formal agreement for sale and purchase before 1 February 2013 as specified by Clause 2(b) of the Agreement. 

Requisitions and Answers

15.By two letters both dated 22 February 2013, a total of 9 requisitions were raised by WF.

16.By a letter dated 27 February 2013 (which was only faxed to WF on 28 February 2013 at 14:56), DLP purported to answer the aforesaid requisitions though without answering requisition no 9 raised in WF’s second letter dated 22 February 2013.

17.By a letter dated 28 February 2013 (which was faxed to DLP on 28 February 2013 at 20:49 and was delivered to DLP by hand on 1 March 2013 at 12:18), WF raised further requisitions in respect of requisition no 5(d), no 6, no 7(b) & (c) and reminded DLP that requisition no 9 remained outstanding and that they were still waiting for DLP’s answer.

18.For the purpose of the present proceedings, the following 4 out of the 9 requisitions are relevant:-

“5. Deed of Gift Memorial No TW1617852 (“the Deed of Gift”)

(d) Please produce documentary evidence before completion for proof of full payment of stamp duty under the Deed of Gift.” (“the Deed of Gift Requisition”)

6. Order Memorial No 10021900570189

Please produce a Letter of Compliance in respect of compliance with the Order Memorial No 10021900570189 for our perusal before completion.” (“the Building Order Requisition”)

7. Existing Tenancy Agreement

(b) Please confirm whether any notice(s) to quit has/have been served to the tenant and if so, please let us have certified copy(ies) thereof for our perusal;

(c) Please confirm whether any agreement(s) to vary the term(s) of the said existing Tenancy Agreement of the Property has/have been entered into between your client and the tenant and if so, please let us have certified copy(ies) thereof for our perusal.” (“the Tenancy Agreement Requisition”); and

9. We note that the following title deeds and documents shown on the land search record of the Property were not found amongst those forwarded to us:-

(a) Survey Plan No NK 583

Please provide us with the above title deeds and documents to complete the chain of title to the Property for our perusal and approval of the Vendor’s title thereto as soon as is practicable prior to the completion. (“the Survey Plan Requisition”)”

Draft undertakings and comments thereon

19.By a second letter dated 28 February 2013, WF enclosed their draft undertaking letter and assignment of the Property for DLP’s comments.  This second letter was faxed to DLP on 28 February 2013 at 20:50 and delivered to DLP by hand on 1 March 2013 together with the said first letter of 28 February 2013 at 12:18.

20.By a letter dated 1 March 2013 (faxed to WF twice at 12:49 hours and 12:55 respectively), split cheque instructions were given by DLP and draft undertaking letter commented by DLP was faxed to WF on the same date at 13:34.

21.By a letter dated 1 March 2013 faxed to DLP at 15:55, WF specifically referred DLP to WF’s letter dated 28 February 2013 and that WF had only received DLP’s said split cheque instructions and the said commented draft undertaking letter.  WF further made it clear that the plaintiff was ready able willing to complete after all outstanding requisitions had been answered to their satisfaction.

The plaintiff’s case

22.As no reply was received from DLP, by their letter dated 1 March 2013, which was faxed to DLP at 17:12, WF stated inter alia that DLP had failed to satisfactorily answer their requisitions and therefore holding the defendant in repudiatory breach of the Agreement, in respect of which was accepted by the plaintiff.

The defendant’s case

23.By a letter dated 8 March 2013, DLP alleged that WF’s second letter of 1 March 2013 amounted to a wrongful repudiation of the Agreement and the same was accepted by the defendant who was therefore entitled to forfeit the deposit in the total sum of HK$200,000 previously paid by the plaintiff.

24.By the affirmation of Leung Wai Yuen, Darin, the solicitor who handled the transaction on behalf of the Vendor at DLP (“Leung’s Affirmation”), the defendant alleged inter alia that there had been no outstanding requisitions and that the mid-night rule applied in this case.

25.As summed up by his counsel, the points raised by the defendant (as appeared under Leung’s affirmation) are as follows:-

(a)   The Agreement (which is written in the form of a provisional agreement for sale and purchase) is at all material times the only valid agreement between the plaintiff and the defendant and should be the only agreement to be relied on by the parties.  The plaintiff does not dispute that the Agreement was the only document executed between the plaintiff and the defendant.

(b)   As the Agreement does not provide for the time of the completion date by which completion should take place, nor did the parties agreed on such completion time otherwise, hence the midnight rule should apply.

(c)   Due to the mid-night rule, the defendant/DLP had until midnight to reply.  The plaintiff/WF were not entitled to allege that DLP had failed to answer WF’s requisitions.

(d)   The plaintiff is not entitled to accept repudiation as at 17:12 on 1 March 2013.  In the circumstances, the plaintiff itself had committed a repudiatory breach.

(e)   As far as the requisitions are concerned, the defendant’s stance is that DLP had already satisfactorily answered all WF’s requisitions by its letter dated 27.2.2013.

(f)    Further or alternatively, the parties’ subsequent conduct/action show that there were no outstanding requisitions on the completion date as at 13:34.

(g)   Even if, which is denied, there were still outstanding requisitions as at 13:34 of 1 March 2013, WF had to point out to DLP what the outstanding requisitions were.

(h)   Even if, which is denied, DLP was obliged to answer WF, reasonable/sufficient time should be given to DLP to take instructions/enquire about what WF considered the outstanding requisitions were.

Relevant principles involved

26.It is trite that a vendor is obliged to give a good title to the extent that the court could conclude beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance MEPC Ltd v Christian-Edwards [1981] AC 205.

27.Even though the agreement is wholly silent on the question of objections and requisitions as to title, there is an obligation on the vendor to show a good title.  There is an obligation on the vendor to answer requisitions and objections, that is to say, to bring forward facts and circumstances known to him which might be material to the title which he has contracted to pass to the purchaser on completion. In the absence of any relevant contractual provisions governing time, the obligation on the vendor to answer requisitions and objections must be discharged within a reasonable time to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed.  The obligation of showing good title would not have been discharged by disclosure on the day fixed for completion: see Andrew Cheung J’s (as he then was) judgment in Smart Max Enterprise Ltd v Speedy Way Ltd [2011] 1 HKLRD 796 citing Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396).  (On appeal, Andrew Cheung J’s judgment was upheld – see Smart Max Enterprise Ltd v Speedy Way Ltd [2011] 3 HKLRD 675).

28.In Profit World Trading Ltd v Ho So Yung [2011] 2 HKLRD 773, Le Pichon JA (as she then was) stated that:-

“…… As I have endeavoured to explain, requisitions have to do with the vendor’s obligation to show a good title. The vendor’s obligation to give a good title is an entirely independent obligation. In the first place, implicit in the judgment of this court in Strong & Associates Ltd v Flywin Co Ltd [2002] 1 HKC 54 is the proposition that the vendor’s obligation to give a good title is irrespective of requisitions. …… Logically, a vendor’s obligation to give a good title on completion cannot depend on whether a requisition as to defects was raised within time or was raised late or not at all. Either he is in a position to give a good title on completion or he is not. Requisition cannot alter the nature of that obligation.”

29.The aforesaid Le Pichon JA’s (as she then was) judgment is adopted and followed by Deputy High Court Judge Yeung, SC in Continental Zone Limited v More Glory International Limited, HCMP 446/2012, unreported, dated 18 April 2013.  The learned Deputy High Court Judge also quoted and accepted as good law the following passage of Barnet J’s judgment in Lucky Health International Enterprise Ltd v Chi Kit Co Ltd [1998] 4 HKC 656 that:-

“…… on the authorities, eg Peyman v Lanjani, it is clear that a purchaser may rescind, without waiting for the completion date, when he becomes aware of an irremovable defect in title.”

30.The learned Deputy High Court Judge further adopted Yuen J’s (as she then was) judgment in First Shanghai Enterprises Ltd v Dahlia Properties Pte Ltd [2001] 3 HKC 443 at 455I “Once the contract is kept alive, it is kept alive for the benefit of both parties” and accepted that the title problems associated with the authorized building works in that case were irremovable.

31.As enunciated by Le Pichon JA in All Ports Holdings Limited v Grandix Limited, [2001] 2 HKLRD 630, an order made under section 26 of the Buildings Ordinance (Cap 123) created a potential blot on the title.  On the fact of that case, the learned judge upheld that the vendor had failed to answer the requisition concerning the section 26 order satisfactorily, thereby failing to show a good title.  It therefore followed that the purchaser was entitled to accept the vendor’s repudiation of the contract.

32.In Crowning Success Limited v Brightland Corporation Limited & Anor, CACV 110/2009, unreported, dated 1 April 2010, the vendor agreed to sell the property in question to the first defendant (“the purchaser”) and the completion date was to be 22 July 2005.  An inspection of the property at around 1:00 pm on the date of completion revealed that the unit had a smaller saleable area and a different configuration from the plan previously shown by the vendor.  Later in that afternoon, at about 4:40 pm, the purchaser’s solicitors issued a letter to the vendor and rescinded the agreement.  On appeal, counsel for the vendor sought to invoke the mid-night rule as stated in Camberra Investment Ltd v Chan Wai Tak [1989] 1 HKLRD 568.  The same was rejected by the learned Justice of Appeal who gave reasons (at §15) as follows:-

“But, on the facts of the present case, by 4:40 pm when the purchaser rescinded the head agreement, the vendor was already in breach of its obligation. It is unarguable but that the vendor was in no position to deliver the property it had agreed to assign. On the findings of the judge, this is a clear case of anticipatory breach by the vendor. The Camberra principle can have no application to the present case and is irrelevant. Accordingly the appeal against the purchaser must fail.”

33.In Town Bright Industries Ltd v Bermuda Trust (Hong Kong) Ltd & Anor [1998] 2 HKC 445, Hartmann J (as he then was) held inter alia (this part of judgment was upheld on appeal by Godfrey JA – see Town Bright Industries Ltd v Bermuda Trust (Hong Kong) Ltd & Anor CACV 137/1998, unreported, dated 21 January 1999) that:-

“A failure to stamp an instrument chargeable with stamp duty was a matter of conveyance and did not go to title. Section 15 of the Stamp Duty Ordinance (Cap 117) empowered the court to receive unstamped instruments subject to suitable undertakings. It followed that the unstamped instruments effecting the transfer of the equitable title from the centre to the second defendant could be used to prove good title subject to undertakings to ensure that the statutory obligation to stamp would be observed and that the plaintiff purchaser would be protected from possible liability.”

ISSUES TO BE DETERMINED

34.Judging from the above, I agree with counsel that the main issues for the court to decide are:-

(1)   Whether the defendant has failed to answer the requisitions satisfactorily;

(2)   Whether the defendant has failed to prove, show and give good title to the Property;

(3)   Whether the plaintiff was entitled to rescind the Agreement by its second letter dated 1 March 2013;

(4)   Whether the mid-night rule applied; and

(5)   Whether the defendant was in repudiatory breach of the Agreement or whether the plaintiff was in repudiatory breach as alleged by the defendant.

DISCUSSION

Whether the defendant has failed to answer the requisitions satisfactorily and has failed to prove, show and give good title

Requisition no 5(d): the Deed of Gift Requisition

35.By requisition No 5(d), WF asked for documentary evidence for proof of full payment of stamp duty under the Deed of Gift in question.

36.In reply, DLP replied that the plaintiff being a bona fide purchaser from the donee of a Deed of Gift was protected under section 51(A)(2)(a) of the Bankruptory Ordinance, Cap 6 and as there were no bankruptcy proceedings or orders, there was no risk on title.  DLP further stated that section 4(5) of the Stamp Duty Ordinance, Cap 117 provided that no action should be brought by virtue of sub-section (3) or (4) or section 45(5A)(c) for recovery of any stamp duty with respect to any instrument more than 6 years from the expiration of the time for stamping such instrument.

37.By the 1^st letter dated 28 February 2013, WF stated that they disagreed with DLP’s view and referred inter alia to section 27(3) of the Stamp Duty Ordinance (Cap 117) and asked for undertaking to cause the said Deed of Gift to be stamped citing Town Bright Industries Ltd.

38.Save and except DLP crossed out the provision in relation to the undertaking to cause the relevant Deed of Gift to be stamped in the draft undertaking commented by them, DLP sought not to reply the aforesaid further requisition.

39.Mr Chu Wai Kei, counsel for the defendant, in his written submission quoted the following passage of Hartmann J (as he then was) from Town Bright Industries Ltd, supra at pp 457-458:-

“Mr Chan has argued that, in light of the formal undertakings, there is nothing in the stamp duty point; that it is a matter of conveyancing and does not affect title. In this regard he referred to the Privy Council judgment in Lap Shun Textiles Industrial Co Ltd v Collector of Stamp Revenue [1976] AC 530 at 535:-

‘A third head of possible difficulty was said to relate to matters of title. But their Lordships were not satisfied of the reality of this difficulty under the system prevailing in Hong Kong. The dictum of Eve J in In re Indo-China Steam Navigation Co [1917] 2 Ch 100, 106 suggesting that registration of a transfer while inadequately stamped would not bring about a legal transfer does not appear to their Lordships to be correct.’

This judgment, of course, precedes our present Stamp Duty Ordinance which came into force in 1981. I further accept that the passage may well be obiter. However, in my view, the principle stated holds good. A failure to ensure that an instrument chargeable with stamp duty is duly stamped does not go to title.

In fairness, of course, counsel for the plaintiff does not strongly argue to the contrary. As I understand it, it is rather his argument that a document which is unstamped may not be used by a vendor to prove good title. In this regard, he has referred me to an article in Hong Kong Law Journal by PG Willoughby (then Director of Professional Legal Education at the University of Hong Kong) entitled: Professional Conduct and Stamp Objections (1981) 11 HKLJ 361. In part the article reads:-

‘Having regard to the fundamentally different policy of the Hong Kong stamp duty legislation, which has always imposed a statutory obligation on the parties to stamp certain instruments, and bearing in mind the civil liability to pay the duty (which was until recently supported by criminal sanctions), it seems that failure to stamp is not a mere technicality which counsel can be permitted to waive. Rather it seems more likely that it is the duty of counsel to uphold the law and endeavour to ensure that the statutory obligation to stamp is observed.

There is perhaps a further aspect to this matter which should be considered and that is whether in Hong Kong failure to stamp an instrument goes to its validity and therefore whether even under the ruling affecting members of the English Bar stamp points can be taken. It seems that references to the validity of an instrument in this context are to the unusual situation that used to affect certain instruments such as bills of exchange and promissory notes 12 which could not be stamped out of time. However, the wording of section 15(1) of the Stamp Duty Ordinance is such that it seems that in Hong Kong an umstamped or insufficiently stamped instrument may properly be regarded as ‘invalid’. It may be, therefore, that for this reason also it is proper for counsel to object to the admissibility of instruments that are not duly stamped.’

Certainly, the ordinance lays down an obligation to ensure that stamp duty is charged and a failure to do so means that an instrument shall not be received in evidence or ‘be available for any other purpose whatsoever’. But Section 15 gives a discretionary power to the court to receive such instruments in evidence subject to suitable undertakings; that is, undertakings of the kind given by Mr Chan. If the proviso allows for such instruments to be used in evidence to prove good title, in my judgment, it must follow that they can be used outside court to prove good title subject, of course, to a similar undertaking. That undertaking was given by the vendor’s solicitors.

In my view, therefore, the fact that the instruments passing equitable title from the Centre to the Institute were unstamped did not prevent the vendor from proving good title subject to any undertaking necessary to ensure that the statutory obligation to stamp was observed and the purchaser protected from possible liability.”

40.The defendant’s submission is that this goes back to the point of undertaking and the issue is limited to proving title only.  It is submitted on behalf of the defendant that even the paragraph regarding undertaking to cause the Deed of Gift to be stamped was crossed out, it does not automatically mean that DLP cannot take further instructions from the defendant and agreed to provide such undertaking before midnight on 1 March 2013, having taken the letter faxed by WF at 15:55 on 1 March 2013 into account.

41.I do not accept the defendant’s submission above.  I agree with the plaintiff’s counsel submission that DLP has failed to answer the said requisition satisfactorily because it had failed to address WF’s concern in their 2^nd letter dated 28 February 2013.  Applying Town Bright Industries Ltd, I am of the view that while a failure to stamp an instrument chargeable with stamp duty is a matter of conveyance and does not go to title, this is subject to the suitable undertakings to be provided by the vendor.  In this case, the defendant has simply failed to give the necessary undertaking. There is no indication at all that before WF accepted the defendant’s repudiation at 17:12 on 1 March 2013, the defendant had agreed to provide such an undertaking.  It simply ignored such a request.  Subject to the discussion hereinbelow on whether the mid-night rule applies in our case, I am of the view that the defendant has failed to give such undertaking and therefore was in breach of the Agreement by failing to answer this requisition in a satisfactory manner.

Requisition no 6: the Building Order Requisition

42.Requisition no 6 concerned a section 26 Order issued by the Building Authority in which the Property being one of the subject properties.  Save and except a mere assertion that all the repair works had been completed and the plaintiff was fully aware of the same (which was denied by WF) and crossing out the provision in WF’s draft undertaking that a sum of HK$50,000 was proposed to be stakeheld as the security pending the compliance of the said Order, DLP gave no further answer.

43.The defendant’s case on this issue is that it was the plaintiff who had taken the initiative to put forward the proposal of the defendant’s stakeholding money in a sum of HK$50,000 “with a view to seeing the transaction through to completion” (see Chong’s 2^nd Affirmation at §23).  In this regard, the plaintiff referred to the provisional agreement dated 1 January 2011 and the last assignment dated 18 February 2011 in the previous transaction of the same Property, where, at the time of the defendant’s purchase of the Property, the defendant had the benefit of a clause which enabled the defendant to obtain through the firm then acting on behalf of the purchaser in the last assignment and the defendant’s predecessor-in-title, a sum of HK$30,000 from and stakeheld by another firm of solicitors for the purpose of payment of costs relating to the Order. 

44.The plaintiff’s case is that the existence of the benefit of the clause regarding the HK$30,000 stakeholding money for the section 26 Order in the last assignment must be within the knowledge of the defendant and “which, if revealed, might be sufficient for the Defendant to answer the Building Order Requisition satisfactorily” see Chong’s 2^nd Affirmation at §23.

45.The defendant’s answer to that is both the provisional agreement dated 1 January 2011 and the last assignment dated 18 February 2011 were registered documents and should be discoverable by WF.  In any event, it says that none of these were raised in WF’s requisition letters.  Further, it is submitted on behalf of the defendant even if the paragraph regarding stakeholding HK$50,000 was crossed out, it does not automatically mean that DLP could not take further instructions from the defendant and agree to the stakeholding before midnight on 1 March 2013, having taken WF’s letter faxed at 15:55 into account.

46.In my judgment, it is clear that DLP has failed to satisfactorily answer the aforesaid requisition in regard to the section 26 Order.  As a matter of law, it is for the defendant as vendor to provide a good title, whether such requisition was raised or not.  In my view, it is not for the purchaser’s solicitors to go to find the answers in the registered documents themselves.  Since the Building Order acts as a title blot to the Property (see All Ports Holdings Limited above), I am of the view that, subject to the discussion on the effect of the mid-night rule in this case, the defendant has failed to provide a good title.

Requisition no 7: the Tenancy Agreement Requisition

47.As to the requisition relating to the tenancy agreement which the Agreement was subject to, the plaintiff claims that requisition no 7(b) & (c) remained unanswered.

48.I agree with the defendant’s counsel submissions on this issue that these requisitions primarily concern the original copy of the existing tenancy agreement.  Since DLP has agreed to provide the original tenancy agreement dated 30 August 2012 duly stamped within 7 working days after completion in their letter dated 27 February 2013, I am of the opinion that it has satisfactorily answered this requisition. 

49.As to the request for the Form CR 109, I also agree with the defendant’s counsel that Form CR 109 is not a title document and the defendant is not obliged to produce the same. I agree with Mr Chu that while the existence of tenancy might in some circumstances be a matter of title, where the termination of the tenancy and cessation of the tenant’s rights were within the power of the vendor to enforce, then the existence of the tenancy was a matter of mere conveyancing and did not to title: see Sihombing & Wilkinson, Hong Kong Conveyancing, V [161]-[165].

50.Thus, I am of the view that the plaintiff was not entitled to repudiate the Agreement based on the failure of answering the Tenancy Agreement Requisition.

Requisition no 9: the Survey Plan Requisition

51.Likewise, the plaintiff claims that DLP has failed to give any answer at all to requisition no 9 concerning the Survey Plan No NK583.

52.The defendant’s answer on this is that given that WF did not mention anything about the Survey Plan in the draft undertaking letter, a reasonable reader is likely to read that such demand is dropped.  Further or in the alternative, the defendant claims that even if DLP did not answer the requisition in respect of the Survey Plan, it does not automatically mean that DLP could not have asked for the defendant’s instructions and provide the same as at 17:12 on 1 March 2013.  It says that DLP’s conduct, taken to the highest, is simply silence on the matter.  The defendant submits that nothing can be construed therefrom indicating that DLP/the defendant did not intend to provide the Survey Plan.

53.I do not accept the defendant’s submission on this issue at all.  I do not consider that the plaintiff had dropped this demand at all.  In my view, the defendant has simply failed to provide any answer to this requisition and therefore failed to provide a good title to the Property.    

Whether the defendant has failed to prove, show and give good title to the Property

54.In the aforesaid premises, save for requisition no 7 ie the Tenancy Agreement Requisition, I am of the view that the defendant has failed to answer the other requisitions and therefore failed to prove, show and give good title to the Property.

Whether the plaintiff was entitled to rescind the Agreement by its second letter dated 1 March 2013

55.In my judgment, the plaintiff was entitled to rescind the Agreement by WF’s 2^nd letter dated 1 March 2013 issued at 17:12. 

56.Judging from the history of the correspondence between WF and CLP as discussed above, particularly those between 22 February and 28 February 2013, it is clear to me that, on the facts of this case, the defendant was not in a position to provide answers to those requisitions raised by the purchaser by the agreed date of completion.  

57.I agree with the plaintiff’s submission that the defendant should satisfactorily answer the requisitions “within a reasonable time to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed and the obligation of showing good title would not have been discharged by disclosure on the day fixed for completion” (see Smart Max Enterprise Ltd and Active Keen Industries Ltd) and the section 26 Order was a potential title blot (see All Ports Holdings Limited) and therefore was irremovable (see Continental Zone Limited).  Thus, in my view, the plaintiff was entitled to rescind the Agreement before the date of completion, not to mention at 17:12 on the completion date.

Whether the mid-night rule applied

58.The defendant submits that, if the midnight rule applies, the defendant has until 12:00 midnight on 1 March 2013 to complete/answer the requisitions raised by the plaintiff.  It follows that the plaintiff was not entitled to accept repudiation as at 17:12 on 1 March 2013 and therefore the court needs not deal with whether DLP has already satisfactorily answered all WF's requisitions at all.

59.The midnight rule is conveniently summarized by the Law Society Circular 89-15 dated 23 January 1989 as follows:-

“In Camberra Investment Ltd v Chan Wai Tak otherwise knows as Frederick Chan [Civil Appeal No 75 of 1988], the Court of Appeal, following the decision of the House of Lords in Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195 (HL), held that where a contract of sale and purchase provides for completion to take place on a certain date without specifying the time(s), the time for completion will not expire until midnight on that date.

To preventthemidnight rulefrom applying, itis necessary toprovide specificallyinacontract ofsaleandpurchasenotonlythedatebutalsothe time(s)forcompletion. Thefollowingclauseisanexample:-

‘Thesaleandpurchaseshallbecompleted attheofficesofABC&Co Solicitors, betweenthehoursof[insertusualofficehours]onorbefore [insertdate].’”

60.In Camberra Investment Ltd v Chan Wai Tak [1989] 1 HKLR 568 (Court of Appeal; 13 December 1988), the plaintiff as purchaser entered into an agreement for sale and purchase of a flat with the defendant as vendor.  The agreement for sale and purchase provided for completion to take place at the offices of a firm of solicitors, who were acting for both parties at the time, “on or before 28 February 1987”.  It also stated that time was of the essence.  On 28 February 1987 the defendant gave notice to the solicitors that he was ready to complete and that, in the absence of completion, he required them to rescind the agreement for sale and purchase and forfeit the plaintiff's deposit.  For this purpose the defendant attended at the solicitors’ offices until about 1:25 pm when he left, no completion having occurred.  Between 2:30 pm and 3:00 pm the plaintiff delivered to the solicitors a personal cheque for the outstanding balance of the purchase price.  An attempt was made to contact the defendant but was unsuccessful.  On the following Monday the plaintiff delivered to the solicitors two bankers cashier orders in exchange for the personal cheque.  The solicitors wrote to the defendant inviting him to attend their offices for the completion but the defendant did not do so.  The Court of Appeal held that the plaintiff was entitled to tender payment at any time on Saturday, 28 February 1987 up until mid-night that day.  Hunter JA stated (at 573 C-H):-

“Mr Litton for the respondent acknowledged that if the words in the schedule stood alone it might be difficult to argue that a day meant anything other than a day. But he relied first upon the mutuality of the obligations in clause 3, and more particularly upon the words ‘at the offices of Messrs Kwan & Kwan’. The limitation of place necessarily introduced a limitation of time as well. He painted an alarming picture of vendors and purchasers knocking on the doors of solicitor’s offices at anything between 00.01 am and 23.59 pm if the midnight rule was applied. This would compel solicitors to keep their offices open during all the available hours. To avoid this absurd result it was ‘necessary’ to read into clause 3 or the Schedule words of limitation such as ‘during normal working hours’.

I cannot agree that the application of the midnight rule would lead to any such extravagant consequences to Hong Kong solicitors, any more that it has done to bankers since the decision in Afovos. A solicitor is under no sort of obligation to keep his office open beyond the hours of his own choosing. If his services are necessary to completion of a contract then as Kerr LJ said in Afovos [1982] 1 WLR 858, :-

‘Where performance requires the cooperation of another party, the obligee cannot complain if the other party is unavailable at a time of day which is unreasonable in the circumstances’.

The same applies a fortiori to a solicitor.  The choice is the solicitor’s.  If he chooses to act and complete a contract at a time later than his usual office closing time he can do so.  But in the absence of some express stipulation I can see no ‘necessity’ in Lord Wilberforce's language to imply a qualification that after any particular  hour  he has either to stop work or to date the transaction the day following.  It would be the more bizarre in this case where the parties generally were unaware of Kwan & Kwan’s usual working hours, and where both the solicitors representative and one party were content to work well into Saturday afternoon.  If, as was suggested in argument, this view gives rise to any alarm and despondency in the Law Society, the remedy is simple.  This is to follow the apparent UK example, and limit the dates and times for completion specifically in the contract.  The removal of clause 14 might also be considered.”

61.In Afovos Shipping Co SA v Romano Pagnan and Pietro Pagnan (Trading as R Pagnan & F.lli) [1982] 1 WLR 858, Lord Hailsham of St Marylebone LC stated:-

“Ibelievethat, inprinciple,onlyoneanswer ispossible, namely atmidnight onthelastdayavailable tothemforthedueandpunctualpaymentofthehire, ieJune 14. Itake ittobeageneral principle oflawnotrequiring authority thatwhereaperson underanobligationtodoaparticularacthastodoitonor beforeaparticulardate hehasthe wholeofthatdaytoperform hisduty. No doubtasthehourspassitbecomes lessandlessprobablethat he will beable todoit. Thatistheriskheruns. Butheisnotactuallyindefaultuntilthetime arrives.” (Emphasis added)

62.I do not accept the defendant’s submissions that the mid-night rule should apply in this case for two reasons.

63.First, for reasons stated under the discussion of requisitions raised by the plaintiff above, on the facts of this case, I am of the view that when the plaintiff rescinded the Agreement at 17:12 on the date of completion, the defendant was already in breach of its obligations.  I do not consider that the defendant was in a position to deliver good title to the plaintiff even if it was given until mid-night on the day of completion to do so.  Thus, this is a clear case of anticipatory breach on the part of the vendor and the plaintiff was right in accepting the repudiatory breach of the Agreement at 17:12 when there was no realistic chance that the defendant would able to complete even if given until mid-night on that day to do so.  As such, the Camberra principle will have no application in this case at all: see Crowning Success Limited v Brightland Corporation Limited & Anor, supra.

64.Second, if the defendant considered that the midnight-rule applied, it is clear that it had never made any further efforts to try to provide answers to the outstanding requisitions before mid-night on 1 March 2013.  If it, or the solicitors acting on its behalf, insisted that the mid-night rule should apply, one would expect that the defendant would have immediately accepted the repudiation on the part of the plaintiff when it received WF’s letter at 17:21 on 1 March 2013.  However, DLP had only accepted the plaintiff’s repudiation on 8 March 2013, some 7 days after the agreed date of completion.  In my view, without accepting the repudiation on the part of the plaintiff, the defendant was still obliged to prove, show and make good title to the Property before mid-night of 1 March 2013 (even if the mid-night rule applied).  As the defendant had failed to do so, it is my view that the defendant was in repudiatory breach of the Agreement.

Whether the plaintiff or the defendant was in repudiatory breach

65.For the reasons stated above, in my judgment, it is the defendant who was in anticipactory breach of the Agreement and the plaintiff, by its letter at 17:21 on 1 March 2013, was right to hold it in repudiatory breach of the Agreement and to accept such repudiation.  

ORDERS 

66.In the aforementioned premises, I am of the view that the defendant has failed to answer satisfactorily most of the requisitions raised by the plaintiff and therefore has failed to prove, show or give a good title to the Property.  As such, the plaintiff is entitled to rescind the Agreement and claims for the return of the deposits and interest, together with the associated costs for the stamp duty, registration fee and estate agent’s commission.

67.There is no dispute that the plaintiff had paid an initial deposit of HK$50,000 and further deposit in the sum of HK$150,000 pursuant to the Agreement.  Following my decision above, I am of the view that the plaintiff is entitled for the return of the sum of HK$200,000 paid as deposits.

68.The plaintiff also claims for the reimbursement of the conveyancing costs in the sum of HK$5,360 and stamp duty and registration fee in the sum of HK$210 and $100 respectively.  The plaintiff also claims reimbursement of the estate agent’s commission paid in the sum of HK$20,000.

69.There seems to be no dispute on the above sums by the defendant.  Following my decision above, I am of the view that the plaintiff is entitled to the return/reimbursement of the above amounts in the total sum of HK$225,670.

70.The plaintiff will be entitled to interest on the above sum from 1 March 2013 until date of judgment at the rate of HSBC prime plus 1%, and thereafter at judgment rate.   

71.Clause 9 of the Agreement provides that in the event that the vendor fails to complete the sale in the manner stipulated in the Agreement after receiving the deposit, he shall immediately compensate the purchaser with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit.  The plaintiff claims liquidated damages in the stipulated sum at HK$200,000 which was equivalent to the deposit it paid to the defendant.  I am not convinced that this is a “genuine pre-estimate of loss” as stated by Lord Denedin in Dunlop Pneumatic Tyre Company v New Garage [1915] AC 79.  There is no evidence produced by the plaintiff to show that this was a genuine pre-estimate loss.  In the absence of any of such evidence, I consider that this could only be treated as penalty and therefore not recoverable as a matter of law: see for example CMC Group Plc v Zhang [2006] EWCA Civ 408 and Lansat Shipping Co Ltd v Glencore Grain BV (The Paragon) [2009] EWCA Civ 855.  

72.Accordingly, I make the following Orders:-

(1)   A Declaration that the defendant was in breach of the Agreement by failing to give good title to the Property on 1 March 2013, the breach of which was accepted by the plaintiff by letter on the same date;

(2)   An Order that the defendant do return to the plaintiff the sum of HK$200,000 being the total amount of the deposits paid by the plaintiff to the defendant under the Agreement, together with interest from 1 March 2013 to date of judgment at the rate of HSBC prime plus 1%, and thereafter at judgment rate;

(3)   An Order that the defendant do pay the sum of HK$25,670 being the reimbursements of the convenyancing costs, stamp duty, registration fee and estate agent’s commission paid by the plaintiff, together with interest from 1 March 2013 to date of judgment at the rate of HSBC prime plus 1%, and thereafter at judgment rate.

73.The plaintiff is also entitled to the costs of the application.  I shall make an order nisi that the costs of the plaintiff’s application be paid by the defendant to the plaintiff, to be taxed if not agreed, with certificate for counsel, which order nisi will become absolute 14 days after the date of this judgment unless an application in writing to vary is filed and served within the said period of time.  

74.Lastly, I would like to thank counsel for their helpful assistance.

Mr Victor KH Chiu, instructed by Wong, Fung & Co, for the plaintiff

Mr Chu Wai Kei, instructed by Darin Leung & Partners, for the defendant