TSE PING SHUN DAVID AND ANOTHER v. LAI HO MAN SHAN GRACE AND ANOTHER

bjbj HCA 105/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 105 OF 2006 ____________ BETWEEN TSE PING SHUN DAVID 1st Plaintiff YICK WING SHEUNG 2nd Plaintiff and LAI HO MAN SHAN GRACE 1st Defendant LAI KWOK MING 2nd Defendant ____________ Before: Deputy High Court Judge A. Chow, SC in Court Dates of Hearing: 17, 18 and 20 February 2009 Date of Judgment: 23 March 2009 ______________ J U D G M E N T ______________ This case illustrates the danger of entrusting the drafting of a sale and purchase agreement relating to a complicated and substantial transaction to persons who are not legally trained to do so. In this action, the Plaintiffs claim against the Defendants for a declaration that the Plaintiffs have effectively rescinded an agreement (the Agreement ) dated 19 June 2005 for the sale and purchase of all the issued shares of a company known as Win Wise Investment Limited (the Company ), return of a deposit in the amount of HK$500,000.00, liquidated damages in the sum of HK$500,000.00, a declaration that the Defendants are liable to pay a commission in the sum of HK$316,000.00 to Midland Realty International Limited (the Estate Agent ) and other consequential relief. The Defendants counterclaim against the Plaintiffs for a declaration that they are entitled to forfeit the said deposit and a further declaration that the Plaintiffs are liable to pay the commission of HK$316,000.00 to the Estate Agent. Basic facts The relevant facts are largely not in dispute. The Company was incorporated in Hong Kong on 20 August 2004 and had a total of 800 issued shares of HK$1.00 each (the Shares ). Its only directors and shareholders were the 1st and 2nd Defendants, each holding 400 issued shares of the Company. The Company was the owner of a property known as ALL THOSE 142 equal undivided 80,444th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry known as NEW KOWLOON INLAND LOT NO.6277 And of and in the messuages, erections and buildings thereon known as ONE BEACON HILL, No.1 Beacon Hill Road, Kowloon (the Building ) TOGETHER with the exclusive right and privilege to hold use occupy and enjoy FIRSTLY ALL THAT Flat B on the 1st Floor and Flat Roof and Garden adjacent thereto of Tower 16 of the Building and SECONDLY ALL THAT Car Parking Space No.3 on Car Park C4 of the Building (the Property ). At all material times, the Property was subject to an all monies mortgage in favour of CITIC Ka Wah Bank (the Bank ). Through the introduction of the Estate Agent, the Plaintiffs came to know that the Property was on the market for sale. After the Plaintiffs had a view of the Property on or about 17 June 2005, they became interested to purchase the Property. However, instead of entering into an agreement directly with the Company to purchase the Property, they entered into the Agreement with the Defendants for the purchase of the Shares, apparently with a view to saving the stamp duty payable on an agreement for the sale and purchase of the Property. The Agreement was entered into by the Defendants as vendors and the Plaintiffs as purchasers on or about 19 June 2005. The Agreement was written in Chinese and drafted by the Estate Agent. There is some dispute on the evidence as to whether Clause 13 of the Agreement was already in the draft when it was presented to the Plaintiffs for their signature at the Plaintiffs home in the evening of 19 June 2005, or was inserted upon the request of the 1st Plaintiff. I do not reg eQ N SKNhQ @b g d gKN N irmi S@b g p/nc^: &N(W g in accordance with the following the [buyer ] shall make payment to the transferor s solicitors firm for safe keeping as stakeholder, and the deposit(s) shall only be handed to the seller after the completion of the verification of the relevant legal procedures necessary for the transfer of the shares of the Company ); (3) Clause 1: e=|r ,gTSp bKNMR=|r a Nr =|r ,gTSp NUOzl b=|r &TGR\O ows: On the signing of this agreement, without the consent of the buyer, the seller shall not make any decision on behalf of the Company, including signing any contracts and/or undertaking any debt or legal liability, otherwise it shall be regarded as a breach of contract ); (7) Clause 12: vulQ bKNMRsS1 >ksSH _+^L d gKN N irmi, bKNMR ns~ N irmi irmi g NMRAS eZP c cKN(u, KNBf g which is as follows: Remarks: The seller and the buyer agree that in respect of the above Property owned by the above Company, the seller has to ensure that on or before the transaction completion, (the seller) shall clear all bank loan(s) liabilities in connection with the above Property and other liabilities in connection with the above Property; and the seller agrees to lend the buyer the Company rubber chop(s), the seal for the purpose of obtaining a mortgage loan fourteen (14) working days before the transaction completion, and on completing the transaction all the above related documents and articles of the Company shall be handed back to the buyer ). By a separate written agreement dated 19 June 2005 entered into between the Plaintiffs, the Defendants and the Estate Agent, it was agreed that the Plaintiffs and the Defendants were to pay to the Estate Agent the sums of HK$118,000.00 and HK$198,000.00 respectively as estate agent s commission. Neither the Plaintiffs nor the Defendants have, I am told, made any payment to the Estate Agent under this agreement up to now. The Plaintiffs paid the deposit of HK$500,000.00 to the Defendants upon the signing of the Agreement. In relation to the proposed sale and purchase of the Shares, Messrs Mike So, Joseph Lau & Co ( ) acted for the Plaintiffs, and Messrs Yaddy Cheung & Co ( ) acted for the Defendants. By a letter dated 23 June 2005, MS asked YC to sent to them the draft formal agreement for sale and purchase for their approval on behalf of the Plaintiffs and to let them have, inter alia, all papers record & account and certified balance sheet as at 2nd July 2005 of the Company . By a letter dated 27 June 2005, YC asked the Bank to let them know the total outstanding amount of principal and interest calculated up to 17 October 2005 payable on discharge of the Property. Under cover of a letter dated 29 June 2005, YC sent to MS a draft formal Agreement for Sale and Purchase of Share and Loan for their approval on behalf of the Plaintiffs. The draft agreement has not been produced as evidence in this action, but it is of note that at that time it was already envisaged or at least proposed that the transaction would take the form of a sale and purchase of shares and loan, notwithstanding Recital B of the Agreement mentioned above. By a letter dated 30 June 2005 from MS to YC, MS pointed out that the amount of shareholders loan as referred to in Recital (D) of [YC s] draft Agreement for Sale and Purchase was omitted , that the Audited Account as referred to in Clause 1.1 of the draft agreement had not been sent to them, and asked YC to let them have (i) confirmation of the amount of the said shareholders loan and (ii) the Audited Account without delay. By a letter dated 9 August 2005, the Bank gave instructions to YC to prepare the Discharge of the Property for the Bank s execution. From this letter, it would appear that YC was also acting for the Bank in relation to the proposed discharge of the Property from the mortgage. On 24 August 2005, YC sent to MS a revised draft Agreement for Sale and Purchase of Share and Loan (the Aug 24 Draft ) as well as a certified copy of an Audited Report of the Company (the Audited Report ), and asked MS to approve the Aug 24 Draft. The following recitals, among others, appeared in the Aug 24 Draft:- (1) In Recital (D), it was stated that at the Management Accounts Date (which was defined to mean the Completion Date , i.e. 15 October 2005), the Company was indebted to the Vendor (i.e. the Defendants) for the sum of HK$10,670,444.00 (the Loan ). (2) In Recital (E), it was stated that that the parties thereto had agreed for the sale by the Vendor to the Purchaser (i.e. the Plaintiffs) of the Share and the Loan upon the terms and conditions thereinafter appearing. In the Aug 24 Draft, the expression Loan was defined to mean the outstanding interest-free loan due from the Company to the Vendor as at the Completion Date, and such loan amounted to HK$10,670,444.00 as at the Management Account Date. It is not necessary to set out in detail the other provisions of the Aug 24 Draft, save to point out that it envisaged that upon completion on 15 October 2005, the Defendants would assign the Loan to the Plaintiffs, and the Purchase Price was split into two components, namely, the Share Consideration and the Loan Consideration . It is also of note that attached to the Aug 24 Draft as Schedule 4 was a draft Assignment of Loan . The Audited Report was prepared by Cheng, Kwok & Chang, Certified Public Accountants in Hong Kong and was for the period from 20 August 2004 (date of incorporation of the Company) to 30 June 2005. It appears from the Audited Report that, as at 30 June 2005, the Company was indebted to a director in the amount of HK$10,670,444.00 and to the Bank in the total amount of HK$7,780,508.81. By a Mortgage Loan/Property Overdraft Application Form dated 15 September 2005, the 1st Plaintiff applied to Hang Seng Bank for a loan of HK$13,860,000 upon the security of the Property. According to the 1st Plaintiff, when he submitted the application to Hang Seng Bank on 15 September 2005, he was told by Miss Tammy Ho, a manager of that bank, that after the shares of the Company had been formally transferred to the Plaintiffs, it would take the bank about 2 weeks to verify the transfer and release the loan to their solicitors. The 1st Plaintiff also said that he had told Madam Pang Man Tsan ( Madam Pang ) of the Estate Agent about this matter and asked her to chase after the Defendants for the share transfer documents in order to enable him to obtain the mortgage loan. I shall come back to this matter in a later part of this judgment. On 30 September 2005, YC sent a chaser to MS for their approval of the Aug 24 Draft. By a letter dated 7 October 2005 from YC to MS, YC stated that they had not yet received any proposed amendments to the Aug 24 Draft notwithstanding their previous letters of 24 August 2005 and 30 September 2005, and asked MS to treat it as an engrossment and return the same to YC duly signed by the Plaintiffs together with the further deposit of HK$1,480,000.00 as soon as possible. By a letter dated 10 October 2005, the Bank advised YC that the amount payable on discharge of the Property would be HK$7,832,195.75 (inclusive of a prepayment fee of HK$120,000) if paid on or before 17 October 2005. The Bank also expressly stated that repayment must be received by it before 4:00 p.m. on a weekday and before 12:00 p.m. on a Saturday. By a letter dated 12 October 2005, YC asked MS, in order to enable them to prepare the relevant documents (i.e. resolution of directors, instrument of transfer, sold note, Form D3 and R1, etc), to let them have on or before 13 October 2005 the new registered office and business address of the Company and details of the new shareholders, directors and secretary of the Company, including their English and Chinese names, addresses and identity document numbers. By a 2nd letter dated 12 October 2005, YC sent to MS a draft apportionment account in relation to management fee, rates and Government rent in respect of the Property in anticipation of completion on 15 October 2005. By a 3rd letter dated 12 October 2005, YC gave split cheque directions to MS for payment of the further deposit and balance of the purchase price on completion. In particular, MS was requested to make out a cheque in the sum of HK$7,832,197.75 (being the amount required to discharge the Property from the mortgage) in favour of the Bank on completion. By a letter dated 13 October 2005 from MS to YC in response to YC s 1st letter of 12 October 2005, MS stated that, to enable them to approve the Agreement for Sale and Purchase of Share and Loan , they expected to peruse the statutory books and a certified copy of the latest management accounts of the Company before completion. MS also complained that the Company s latest annual return as filed with the Companies Registry was out of date. MS stated that, in light of YC s failure to tender the aforesaid documents two working days before the scheduled completion date, they were instructed to suggest postponing the completion date to 28 October 2005 and amending the Agreement as follows 1. HK$1,480,000.00 being the further deposit will be paid to the Vendor upon signing of the Agreement on or before 21st October 2005. 2. Balance of the purchase price will be paid to the Vendor upon completion on 28th October 2005. 3. The subject matter under the [Agreement] shall be share capital and shareholder/director s loan instead of share capital alone . In that letter, MS also referred to the Audited Report and stated that, under the heading of Current Liabilities , there was an amount due to a director, and asked YC to identify the director in question. As earlier mentioned, in the Audited Report, the amount that was stated to be due to a director was HK$10,670,444.00. In reply, YC under cover of a letter dated 13 October 2005 sent to MS the following: (a) a statutory book, (b) the latest management accounts of the Company, comprising a balance sheet as at 15 October 2005 (the Oct 15 Balance Sheet ) and a Profit and Loss Account for the period from 1 July 2005 to 15 October 2005 (the Oct 15 P&L Account ), and (c) the latest annual return of the Company filed on 23 August 2005, and pointed out that MS s letter of 12 October 2005 was the first time that those documents were sought. YC also identified the director to whom money was owed by the Company referred to in the Audited Report as being the 1st Defendant. Lastly, YC stated that the proposal to postpone completion to 28 October 2005 was not acceptable to the Defendants. In the Oct 15 Balance Sheet, the Amount due to a director under the heading of Current Liabilities was stated to be HK$10,873,323.13, representing an increase of some HK$202,879.13 as compared to the figure (HK$10,670,444.00) as at 30 June 2005 shown in the Audited Report. The 1st Defendant said in evidence that the increase in the indebtedness arose because she had to continue making monthly repayments of the mortgage loan due to the Bank on behalf of the company between 30 June 2005 and 15 October 2005. That this was the reason for the increase in the indebtedness owing by the Company to the director was not disputed by the Plaintiffs. By a letter dated 14 October 2005 from YC to MS, YC chased for the documents mentioned in their 1st letter of 12 October 2005. Under cover of a letter dated 14 October 2005, MS sent to YC the draft Agreement for Sale and Purchase of Share and Loan (which would be a reference to the Aug 24 Draft) and Assignment of Loan with MS s suggested amendments, and asked YC to let them have the engrossments if the amendments were acceptable to the Defendants. Again, MS proposed that the completion date be postponed to 28 October 2005. In the version of the draft Agreement for Sale and Purchase of Share and Loan with MS s amendments sent to YC:- (1) Recital (D) was amended to state that as at the Management Accounts Date the Company was indebted to the Vendor for the sum of HK$10,873,323.13 (instead of HK$10,670,444.00), and the definition of the Loan was amended accordingly. These were done, apparently, to reflect the latest figure shown in the Oct 15 Balance Sheet. (2) Clause 2.1 provided that the Vendor as beneficial owner agreed to transfer the Shares to the Purchaser and assign all the Vendor s rights and benefits of and in the Loan to the Purchaser, and the Purchaser agreed to purchase the Shares and the Loan free from all encumbrance. (3) Clause 3.1(i) provided that on completion the Purchaser shall deliver or cause to be delivered to the Vendor a cashier order or solicitors firm s cheque for the balance of the Purchase Price payable to the Vendor or as the Vendor may direct in writing and for the whole redemption money and other moneys owing to the mortgagee . By a 2nd letter dated 14 October 2005 from MS to YC, MS stated that they understood that their respective clients had agreed to amend the Agreement in the following manner:- 1. HK$1,480,000.00 being the further deposit will be paid to the Vendor upon signing of the Agreement for Sale and Purchase of Shares and Loan on or before 17th October 2005 (next Monday). 2. Balance of the purchase price (including the redemption money of the existing mortgage of the Property) will be paid to the Vendor upon completion on or before 1:00 p.m. of 21st October 2005 (next Friday). Other terms and conditions of the [Agreement] will remain unchanged. In the penultimate paragraph, MS also stated: Meanwhile, please let us have all forms, documents, contracts, letters and otherwise relating to the Company (including but not limited to its updated Memorandum and Articles of Association and transfer documents) for our perusal . I pause to add that MS s aforesaid letter of 13 October 2005 and 2 letters of 14 October 2005 were all marked SUBJECT TO CONTRACT , and ended with the following statement: Nothing herein contained nor in our draft shall be binding on our respective clients unless and until our respective clients have signed a formal agreement for sale and purchase . In reply, YC by a letter dated 15 October 2005 stated to MC that they had been instructed that their clients (i.e. the Defendants) had no objection to:- 1) postpone the signing date of the Agreement for Sale and Purchase of Share and Loan to 17th October 2005; 2) postpone the payment date of further deposit in the sum of HK$1,480,000.00 to 17th October 2005; 3) postpone the completion date to 21st October 2005 before 1:00 p.m. Whatever may be the strict legal effect of MS s 2nd letter of 14 October 2005 and YC s letter of 15 October 2005, it is the Plaintiffs case that there was a binding agreement reached between the parties to postpone (i) the date of signing of the formal agreement for sale and purchase and the date of payment of the further deposit to 17 October 2005 and (ii) the date of completion to 21 October 2005 (before 1:00 p.m.), notwithstanding the matters mentioned in paragraph 40 above. This much is common ground. There is a dispute, however, as to whether the signing of the formal agreement and the payment of the further deposit were linked, in the sense that payment of the further deposit was conditional upon signing of the formal agreement. I shall come back to this matter later in this Judgment. On 15 and 17 October 2005, MS proposed further amendments to the draft Agreement for Sale and Purchase of Share and Loan. Apparently, the terms of the formal agreement were eventually agreed and YC sent an engrossment of the formal Agreement for Sale and Purchase of Share and Loan to MS for signature by the Plaintiffs on 17 October 2005. By a letter dated 17 October 2005, YC asked the Bank to confirm the amount of the principal and interest payable on redemption of the Property calculated up to 22 October 2005. By a letter of the same date in reply, the Bank advised YC that the amount payable on discharge of the Property would be HK$7,832,197.75 (inclusive of a prepayment fee of HK$120,000) if paid on or before 22 October 2005. This was the same amount that was referred to in the Bank s earlier letter of 10 October 2005. The Bank also expressly stated that repayment must be received by it before 4:00 p.m. on a weekday and before 12:00 p.m. on a Saturday. It is apparent that the Plaintiffs were intending to rely upon a mortgage loan from Hang Seng Bank to complete the purchase of the Shares, although the 1st Plaintiff also said in evidence that he could have raised funds from other sources if necessary. Whatever maybe the position, he did not do so as a matter of fact. The problem facing the Plaintiffs at that time was that Hang Seng Bank would not approve the mortgage loan application or release the loan until about 2 weeks after the Shares had been transferred to the Plaintiffs. On 17 October 2005, there was a meeting between the Plaintiffs, Madam Pang and Mr Choy of the Estate Agent, and Mr Woo of MS at the office of the Plaintiffs solicitors to discuss how to resolve the problem relating to the mortgage loan faced by the Plaintiffs. Later, Mr Joseph Lau and Ms Pauline Lau of MS also joined the meeting. In the course of that meeting, Madam Pang had a number of telephone conversations with the 1st Defendant, during which various possible solutions were discussed. It is, however, now common ground that no agreement, or binding agreement, was reached on 17 October 2005. As a matter of fact, the formal Agreement for Sale and Purchase of Share and Loan was not signed, and the further deposit of HK$1,480,000.00 was not paid, by the Plaintiffs on 17 October 2005. By a letter dated 20 October 2005 from MS to YC, MS alleged that they understood from the Estate Agent that the Defendants had no objection to the following:- 1. the Vendor agrees to sell and the Purchaser agrees to purchase the share capital and directors loan of the Company subject to the existing mortgage of the Property; 2. the purchase price consisting of the share consideration and loan consideration, shall be the difference between HK$19,800,000.00 and the outstanding indebtedness owed to the mortgagee; and 3. the Purchaser shall undertake to procure the Company to redeem the existing mortgage within one month after the Completion Date. A further amended formal agreement incorporating the aforesaid proposed amendments was sent to YC under cover of MS s said letter of 20 October 2005. In the same letter, MS also sated that the Plaintiffs were ready to sign a re-engrossed formal agreement on 21 October 2005 and complete the purchase on or before 28 October 2005. By a letter dated 21 October 2005 from YC to MS, YC denied that the Defendants had ever agreed with the Estate Agent or the Plaintiffs in respect of the proposals mentioned in MS s letter of 20 October 2005, and complained that they had still not received the Agreement for Sale and Purchase of Share and Loan duly signed by the Plaintiffs or the further deposit or balance of the purchase price from MS. On 22 October 2005, there was a meeting between the 1st Plaintiff, the Defendants and Madam Pang in a Chinese restaurant. There is some dispute as to what was said at the meeting. However, it is common ground that no agreement was reached. At the trial, neither party placed any reliance on what was said at the meeting as justifying their respective position. I do not therefore consider it necessary to say anything further about this meeting. By a letter dated 24 October 2005 from YC to MS, YC on behalf of the Defendants gave notice of termination of the Agreement (as varied) and forfeiture of the deposit by reason of the Plaintiffs breaches of the Agreement in the following aspects, namely, failure to (i) sign the formal Agreement for Sale and Purchase of Share and Loan on or before 17 October 2005, (ii) pay the further deposit of HK$1,480,000.00 on or before 17 October 2005, and (iii) complete the purchase with payment of the balance of the purchase price of HK$17,820,000.00 on or before 21 October 2005 at 1:00 p.m. By a letter dated 25 October 2005 from MS to YC, MS on behalf of the Plaintiffs denied that the Plaintiffs were in breach of the Agreement as alleged, and instead alleged that the Defendants were in breach of the Agreement in, inter alia, the following aspects:- (1) failure to execute the bought and sold notes and instruments of transfer in respect of the Shares on or before 2 July 2005, contrary to Clause 4 of the Agreement; (2) making further advance(s) by way of director s loan(s) to the Company after the making of the Agreement, contrary to Clause 5 of the Agreement; (3) failure to redeem the Property from the mortgagee bank on or before completion, contrary to Clause 13 of the Agreement. MS stated that the Plaintiffs were entitled to elect and had elected to rescind the Agreement, and demanded for the immediate return of the deposit. A dispute of fact Three witnesses gave oral evidence at the trial, namely, the 1st Plaintiff, the 1st Defendant and Madam Pang. It transpired that the major dispute of fact related to the question of whether, prior to the scheduled date of completion, the 1st Plaintiff had, through Madam Pang, chased after the Defendants for the share transfer documents without which he was, apparently, unable to obtain a mortgage loan upon the security of the Property from Hang Seng Bank. For reasons which I will explain below, I do not regard the resolution of this dispute of fact as being material to the outcome of the case. I shall however deal with it briefly. According to the 1st Plaintiff, even before he made the written application to Hang Seng Bank for a mortgage loan of HK$13,860,000 on 15 September 2005, he had talked to a manager of that bank (Miss Ho) about the proposed mortgage loan application and he had been told that he needed to have the shares of the Company transferred to the names of the Plaintiffs first before the bank could approve the application, and that it would take about 2 weeks after the transfer of the shares for the mortgage loan application to be approved. The 1st Plaintiff said that he had told the estate agent (Madam Pang) about this matter many times before 15 September 2005, and he kept asking Madam Pang to chase after the Defendants for the share transfer documents. In her evidence, the 1st Defendant said that the Plaintiffs only asked for the share transfer documents on or around 17 October 2005 but not before. On the other hand, Madam Pang s evidence was to the effect that although the 1st Plaintiff had complained about missing documents in September 2005, he did not specify what documents were missing or what documents he wanted. She did not ask either. Madam Pang also said that the 1st Plaintiff never specifically asked for the share transfer documents prior to completion. I observe that in the 1st Plaintiff s witness statement, he stated that he had been told about the need to obtain the share transfer documents when he made his application to Hang Seng Bank for a mortgage loan on 15 September 2005, and that he had called Madam Pang many times a few weeks prior to 17 October 2005 (but apparently after 15 September 2005) to ask the Defendants to let the Plaintiffs have the share transfer documents first (i.e. prior to completion) to enable him to obtain a mortgage loan. I also observe that the first time that MS wrote to YC to ask for the share transfer documents was MS s aforesaid 2nd letter of 14 October 2005. I find as a fact that the 1st Plaintiff did ask Madam Pang to request the Defendants to make available the share transfer documents prior to completion in order to enable him to obtain a mortgage loan from Hang Seng Bank, and that this occurred in September 2005. According to Madam Pang there was an occasion in September 2005 on which the 1st Plaintiff called her to complain that the Defendants had not provided all necessary documents to his solicitors. It is likely that the 1st Plaintiff told Madam Pang that he wished to have the share transfer documents on this occasion. Madam Pang s evidence on this point is, I consider, inherently improbable. I also infer that Madam Pang would have informed the 1st Defendant of the 1st Plaintiff s request. According to the 1st Defendant, Madam Pang called her in or about mid September 2005 to inform her of the 1st Plaintiff s complaint. It is likely that Madam Pang told the 1st Defendant of the 1st Plaintiff s request on this occasion. I regard this to be just what one would expect in the ordinary course of business, in view of the fact that Madam Pang effectively acted as the channel of communication between the Plaintiffs and the Defendants (other than through their respective solicitors). Further, the 1st Defendant admitted that on or around 17 October 2005, she had been told by Madam Pang about the 1st Plaintiff s request to have the share transfer documents made available to the Plaintiffs prior to completion of the sale and purchase of the Shares in order to enable the 1st Plaintiff to obtain a mortgage loan. To the extent that the evidence of the 1st Defendant or Madam Pang is inconsistent with the findings made in paragraphs 60 and 61 above, I reject their evidence. I do not, however, find that at the time of the making of the Agreement, the Plaintiffs or the Defendants were aware of, or had thought about, the need to have the share transfers completed prior to completion of the sale and purchase of the Shares so as to enable the Plaintiffs to obtain a mortgage loan on the security of the Property. The Plaintiff s case At the trial, the Plaintiffs relied on four grounds to contend that it was the Defendants who were in repudiatory breach of the Agreement, namely:- (1) failure to execute the instruments of transfer of the Shares on or before 2 July 2005; (2) causing the Company to undertake additional indebtedness to a director in that the Loan was increased from HK$10,670,444.00 as at 30 June 2005 to HK$10,873,323.13 as at 15 October 2005, without the consent of the Plaintiffs; (3) failure to discharge the Bank Loan and the Loan on or before the scheduled completion of the Agreement at or before 1:00 p.m. on 21 October 2005, or at all; (4) wrongful termination of the Agreement by YC s letter of 24 October 2005. In what follows, I shall consider the validity of each of these grounds. (i) Failure to execute instruments of transfer Mr Lin on behalf of the Plaintiffs argued that, upon the true construction of the Agreement, in particular Clause 4 thereof, the Defendants were required to execute the instruments of transfer of the Shares on or before 2 July 2005, such that the Plaintiffs would become the shareholders of the Company prior to completion. Mr Lin further submitted that, although generally speaking the obligations of the purchaser to pay and the obligation of the vendor to complete by giving an executed assignment are to be carried out simultaneously, this was always subject to any express or implied term to the contrary (Chong Kai Tai v Lee Gee Kee [1997] 1 HKC 359), and Clause 4 was such an express term to the contrary. On the other hand, Mr Chan on behalf of the Defendants argued that what Clause 4 referred to was the formal agreement for sale or purchase. Alternatively, Mr Chan said that if Clause 4 was referring to the instruments of transfer, all it meant was that the Defendants were required to sign them in escrow such that there would be no transfer of the Shares to the Plaintiffs until completion. Mr. Chan also said that the Plaintiffs construction would lead to an inconsistency with Clause 12, which contemplated that completion of the transfer of the Shares would take place on or before 15 October 2005 whereupon the balance of the purchase price would be paid. Clause 2 of the Agreement provided that the formal agreement for sale and purchase was to be signed on or ent for the transfer of shares). As a matter of construction of the Agreement, I do not think Clause 4 should be regarded as effectively having no separate purpose or effect. On the other hand, to give full effect to the construction of Clause 4 as contended for by the Plaintiffs would lead to an inconsistency with Clause 12 of the Agreement, which contemplated that completion of the transfer of the Shares would only take place on 15 October 2005 upon payment of the balance of the purchase price. The Plaint S@b g p/nc^: &N(W g ch is as follows: The consideration for transfer of all the shares of the Company is Hong Kong Dollars: HK$19,800,000.00 in accordance with the following the [buyer] shall make payment to the transferor s solicitors firm for safe keeping as stakeholder, and the deposit(s) shall only be handed to the seller after the completion of the verification of the relevant legal procedures necessary relating to the transfer of the shares of the Company ). It is clear that the Agreement contemplated that certain legal procedures relating to the transfer of the shares of the Company had to be carried out before the further deposit would be released to the Defendants, and it would seem that these procedures were to be carried out prior to completion upon which the balance of the purchase price was to be paid. If the legal procedures relating to the transfer of the shares of the Company were to be carried out only on completion, the provision for payment of the further deposit would become quite meaningless. I have not find it easy to reconcile the various provisions of the Agreement and I think the problem arises because the person who drafted the Agreement did not think through the implications or interrelations of the various provisions of the Agreement. My view is that the Agreement envisaged the following steps to be done:- (1) The formal agreement was to be signed on or before 2 July 2005, and the further deposit was to be paid to the Defendants solicitors as stakeholder upon the signing of the formal agreement. (2) The share transfer documents were also to be signed by the Defendants no later than 2 July 2005. (3) Prior to the signing of the share transfer documents, various procedures had to be carried out to verify that the Defendants were the owners of the Shares and were legally entitled to transfer the Shares to the Plaintiffs. (4) The further deposit would only be released to the Defendants after the aforesaid verification process had been completed. The purpose of this arrangement was to ensure that before the further deposit was received by the Defendants, the Plaintiffs would be satisfied that the Defendants had proper right and title to transfer the Shares to them. (5) However, notwithstanding the fact that the share transfer documents had been signed by the Defendants, they were not to be delivered to the Plaintiffs until completion which was scheduled to take place on or before 15 October 2005. In other words, ownership of the Shares would not be transferred to the Plaintiffs until completion. In my view, even if the Defendants had executed the instruments of transfers of the Shares on 2 July 2005, it was not intended that the Plaintiffs would thereby become the owner of the Shares or the shareholders of the Company. As a matter of fact, MS never asked YC to provide the instruments of transfer until 14 October 2005, and the Plaintiffs never asked the Defendants through Madam Pang for the share transfer documents until around mid September 2005. Whether Hang Seng Bank would have been prepared to approve the mortgage loan application or release the loan prior to completion in such circumstances is unknown. Whatever may be the true construction of Clause 4 of the Agreement, I do not think it ultimately matters. This is because the Plaintiffs never relied on any breach of Clause 4 of the Agreement by the Defendants as a repudiatory breach and terminated the Agreement on that ground prior to the scheduled date of completion. Even if one assumes that Clause 4 of the Agreement imposed an obligation on the Defendants to execute the instruments of transfer of the Shares and deliver them to the Plaintiffs on 2 July 2005 and that this obligation was a condition of the Agreement such that any failure to perform the obligation would entitle the Plaintiffs to treat it as a repudiation of the Agreement, the Plaintiffs, faced with a repudiatory breach, were entitled to treat the Agreement as continuing (affirmation of contract) or could bring it to an end (acceptance of repudiation). They must elect to choose between these options. There was no third choice, save that the Plaintiffs had a reasonable period of time to make up their mind whether they were going to affirm or terminate the Agreement (Chitty on Contracts, 13th Ed, Vol 1, paragraphs 24-001 to 24-002). Further, once the Plaintiffs had elected to affirm the contract, and this had been communicated to the Defendants, then the choice became irrevocable, and the contract remained in existence for the benefit of the Defendants as well as of the Plaintiffs such that they remained bound to perform their obligations under the contract unless the effect of the Defendants breach was to prevent performance of the Plaintiffs obligation becoming due (Chitty on Contracts, 13th Ed, Vol 1, paragraphs 24-002 & 24-004). In this case, if there was a breach of Clause 4 of the Agreement, that breach would have occurred on 2 July 2005. Upon the occurrence of that breach, the Plaintiffs could have elected to terminate the Agreement. Since they were at all material times represented by solicitors, in the absence of evidence to the contrary, it must be assumed that they had been properly advised of their legal rights. They did not terminate the Agreement. On the contrary, they treated the Agreement as being alive, by continuing to negotiate with the Defendants about the terms of the formal agreement. Also, they reached an agreement with the Defendants on or about 15 October 2005 to vary the Agreement by postponing the date of signing of the formal agreement and the date of payment of the further deposit, as well as the date of completion. This must be on the footing that the contract was still alive at that time. In these circumstances, I consider that the Plaintiffs had, by their conduct, affirmed the Agreement notwithstanding any breach of Clause 4 of the Agreement by the Defendants. That being the case, they could not rely on the Defendants failure to execute the instruments of transfer to justify their own failure to complete the purchase on 21 October 2005. (ii) Increase of indebtedness to a director The Plaintiffs knew, or must be treated as having known, of the increase in the amount of the indebtedness owing by the Company to the director (i.e. the 1st Defendant) on or about 13 October 2005 when a copy of the Oct 15 Balance Sheet was sent by YC to MS. It is clear that the Plaintiffs had no complaint about the increased indebtedness when they learnt about this matter. On the contrary, in the amended version of the draft Agreement for Sale and Purchase of Share and Loan sent by their solicitors to YC on 14 October 2005, the definition of the expression Loan was changed to reflect the higher figure as revealed in the Oct 15 Balance Sheet. For the reasons given above in respect of the Plaintiffs complaint about the Defendants failure to execute instruments of transfer, I consider that the Plaintiffs had affirmed the Agreement before 21 October 2005 notwithstanding any breach of Clause 5 of the Agreement on the part of the Defendants. In any event, I am by no means satisfied that there was a breach of Clause 5 of the Agreement, which prohibited the Defendants from, inter alia, undertaking any debt or legal liability for the Company after the signing of the Agreement without the consent of the Plaintiffs. I do not believe that Clause 5 was intended by the parties to refer to an indebtedness owing by the Company to a director arising as a result of the director having discharged an obligation on behalf of the Company. Without the payments by the director, the Company would be at risk of foreclosure or other action which might be taken by the Bank for default in repayment of the outstanding mortgage loan. It is true that the indebtedness of the Company to the 1st Defendant was increased between 30 June 2005 and 15 October 2005, but there was a corresponding decrease in the liability owing to the Bank, from HK$7,780,508.81 to HK$7,682,571.52, i.e. a net decrease of HK$97,937.29. The difference between the increase in the indebtedness owing to the director (HK$202,879.13) and the decrease in the bank loan (HK$97,937.29) was probably due to the element of interest on the bank loan. This difference was not explored in the evidence, but on the basis of the explanation given by the 1st Defendant for the increase in the indebtedness to the director (which was not challenged by the Plaintiffs), this would be a reasonable inference to draw. Had the 1st Defendant not made the mortgage loan repayments on behalf of the Company to the Bank, interest would have accrued on the outstanding bank loan anyway. In these circumstances, I do not consider that the Defendants had undertaken any debt or legal liability for the Company between the date of the Agreement and 15 October 2005 within the meaning of Clause 5. I observe that the Plaintiffs would not in fact suffer any real prejudice as a result of the increase in the amount of the indebtedness owing by the Company to the 1st Defendant, because such indebtedness would either be discharged or be assigned to the Plaintiffs upon completion. (iii) Failure to discharge Bank Loan and Loan due to director Mr Lin relied on Clause 13 of the Agreement, and contended that the Defendants had no intention to discharge the Bank Loan and the Loan until after they had received full payment from the Plaintiffs. In so far as the Bank Loan was concerned, it is clear on the evidence that the Defendants intended to utilize the further deposit and balance of the purchase price to discharge the Bank Loan. In so far as the Loan owed to the director was concerned, it would appear that the Defendants had assumed that the Loan would be assigned to the Plaintiffs, instead of being discharged, on completion, in view of the contents of the various drafts of the formal agreement exchanged between the parties solicitors, and thus had not made any preparation for the discharge of the Loan on the scheduled date of completion. From these, Mr Lin argued that the Defendants were not ready willing or able to discharge the Bank Loan and the Loan before they had received full payment from the Plaintiffs. Mr Lin referred to Pang Chor Ying Annie v Lifton Investment Ltd [1993] 2 HKC 57 and submitted that the obligations under a contract for sale and purchase of a property were concurrent and mutual, and the performance by the purchaser triggered those of the vendor, and vice versa. When it became clear to the purchaser that the vendor was unable to fully discharge his obligations under the agreement, the purchaser was entitled to withhold his performance. I accept that generally speaking, the obligation of the purchaser to pay the balance of the purchase price and the obligation of the vendor to complete by giving an executed assignment are concurrent or simultaneous, in the absence of any agreement to the contrary (see also Camberra Investment v Chan wai-tak [1989] 1 HKLR 568 at 574). It has also been clearly established by the decision of the Privy Council in Chong Kai Tai v Lee Gee Kee [1997] 1 HKC 359 that if there is evidence to show that the vendor had taken no steps to ensure that it would be in a position to deliver an executed assignment on the appointed date of completion, he could not rely on the purchaser s failure to tender the balance of purchase price on that date as a repudiation of the contract. It is important to note, however, that in the Chong Kai Tai case, the transaction was the last in a chain of sales and sub-sales and the vendor in that case was not the head vendor. Thus, his ability to deliver an executed assignment on the scheduled date of completion would depend on his having made arrangement for an earlier confirmor to attend his solicitors office to execute the assignment on that date. Since he had not made any such arrangement, it was apparent that he would be in no position to deliver an executed assignment even if the purchaser had tendered the balance of the purchase price on the scheduled date of completion. In this case, Clause 12 of the Agreement provided that the balance of the purchase price should be paid upon completion on 15 October 2005 at the office of the Defendants solicitors. That date was, by agreement, postponed to 21 October 2005. Granted that there was no agreement for completion by undertakings and that formal completion was required, the Plaintiffs as purchasers would be obliged to tender cash or cash equivalent amounting to the sum total of the further deposit of HK$1,480,000.00 and the balance of the purchase price of HK$17,820,000.00 to the Defendants at the office of the Defendants solicitors on the date of completion. Alternatively, it may be said that the Defendants were entitled to insist on the Plaintiffs making payment by split cheques (or cashier orders) with appropriate amounts for discharging the Bank Loan and the Loan. In this regard, it should be noted that the further deposit and balance of the purchase price, totalling HK$19,300,000, was more than sufficient to discharge the Bank Loan (HK$7,832,197.75) and the Loan (HK$10,873,323.13). Since YC acted for the Bank in the discharge of the Property from the mortgage and also for the Defendants in the sale of the Shares, there is no reason why payment of the further deposit and balance of the purchase price to YC by the Plaintiffs, had they tendered the same on the scheduled date of completion (21 October 2005), could not operate as a discharge of the Bank Loan and the Loan. I pause to add that, had the Plaintiffs real concern been that the Loan should be discharged instead of being assigned to them, all they had to do was to inform the Defendants that, notwithstanding the repeated references to Agreement for Sale and Purchase of Share and Loan in various letters from their solicitors to YC and notwithstanding the various versions of the draft agreement prepared or amended by their solicitors (which all contemplated that the Loan would be assigned instead of discharged), they wanted a formal discharge of the Loan on completion. Unlike the situation in Chong Kai Tai, it was well within the power and ability of the Defendants to execute a formal discharge (or waiver) of the Loan on the date of completion without the assistance of any third party. Lastly, I note that the Plaintiffs have not raised any case about the ability of the Defendant to deliver a duly executed discharge or release by the Bank on the date of completion. Mr Lin s argument was simply that the Defendants had no intention of discharging the Bank Loan and the Loan until after they had received full payment from the Plaintiffs. There is thus no evidence adduced by the Defendants on their ability to deliver a duly executed discharge or release by the Bank on the date of completion, and I do not consider it appropriate to speculate on what evidence or defence might have been adduced or advanced by the Defendants to counter such a case had it been raised by the Plaintiffs. In all the circumstances, I consider that the Defendants were entitled to rely on the further deposit and balance of the purchase price to discharge the Bank Loan and the Loan on completion, and I do not think there was any obligation on them to discharge the Bank Loan and the Loan independently prior to completion. (iv) Termination by YC s letter of 24 October 2005 Since it is beyond dispute that the Plaintiffs failed to tender the further deposit and balance of the purchase price on the scheduled date of completion to the Defendants, the latter were entitled to treat the Plaintiffs failure as a repudiatory breach of the Agreement and to accept the repudiatory breach thereby bringing the Agreement to an end. The Defendants case The Defendants relied on four grounds to contend that the Plaintiffs were in repudiatory breach of the Agreement, namely:- (1) failure to execute agreed and approved formal agreement on 17 October 2005; (2) failure to pay the further deposit of HK$1,480,000.00 on 17 October 2005; (3) unilaterally putting forward fundamentally altered terms on 20 October 2005 which also included delaying the agreed upon timetable; and (4) failure to complete on 21 October 2005. I have already found that the Plaintiffs were in repudiatory breach of the Agreement for failing to tender the further deposit and balance of the purchase price on the scheduled date of completion to the Defendants. This ground alone is sufficient to dispose of the case in favour of the Defendants. I shall however deal with the other three grounds relied upon by the Defendants briefly in case this matter should be taken further on appeal. I shall deal with the first and second grounds together, namely, failure to sign the formal agreement and failure to pay the further deposit on 17 October 2005. In so far as the formal agreement is concerned, it seems to me apparent that the draft formal agreement containing MS s amendments sent by MS to YC on 14 October 2005, as well as subsequent further revisions sent on 15 and 17 October 2005, were all meant to be subject to contract , such that the Plaintiffs were not bound as a matter of law by the terms thereof unless and until the formal agreement was actually signed (Au Wing Cheung v Roseric Ltd [1992] 1 HKC 149 at 154D-F). It follows that the Plaintiffs could not be under any legal obligation to sign the draft formal agreement, even though it may be possible to say that at some point in time the terms of the draft formal agreement had been agreed by MS on behalf of the Plaintiffs. The fact that the parties had agreed to postpone the date of signing of the formal agreement to 17 October 2005 makes no difference, just as it could not be said that the Plaintiffs was under any absolute legal obligation, by virtue of Clause 2 of the original Agreement, to sign a formal agreement which included terms different from those contained in the Agreement. In so far as the payment of the further deposit is concerned, there is no evidence that the Plaintiffs ever agreed that the payment of the further deposit should become independent of the signing of the formal agreement. In MS s 2nd letter of 14 October 2005, it was clearly stated that the further deposit was to be paid upon the signing of the formal agreement. In YC s letter in reply dated 15 October 2005, it was stated that the Defendants had no objection to (1) postpone the signing date of the Agreement for Sale and Purchase of Share and Loan to 17 October 2005 and (2) postpone the payment date of the further deposit to 17 October 2005. If it is suggested that these terms were intended to make the payment of the further deposit and the signing of the formal agreement as two independent obligations each to be carried out on 17 October 2005, there is no evidence that this was agreed to by the Plaintiffs. Indeed, it was not even stated in YC s letter of 15 October 2005 that the Plaintiffs had agreed to the terms contained therein. On the other hand, under Clause 2 of the Agreement, it seems clear that the payment of the further deposit was to be conditional upon the signing of the formal agreement (Yiu Yau-ping v Fong Yee-lan [1992] 2 HKLR 167 at 175). That being so, I would not be prepared to find that the parties intended to reach a different result merely from the fact that they agreed to postpone the date for payment of the further deposit and signing of the formal agreement (see Health Link Investment Ltd v Pacific Hawk Investment Ltd [1995] 1 HKC 249 at 255-266). It follows that I do not consider that the Plaintiffs were in breach of the Agreement merely because they failed to sign the formal agreement or pay the further deposit on 17 October 2005. Lastly, in respect of the contention that the Plaintiffs were in repudiatory breach of the Agreement by putting forward fundamentally altered term on 20 October 2005, I do not see how the Plaintiffs, merely by proposing a variation of an existing agreement, even if the proposed variation related to a fundamental aspect of the transaction, can be said to have acted in breach of contract. If a proposed variation is accepted, it will be binding on the parties. If it is not, the parties will be back to the original position. If the proposer then fails to perform the original agreement, he will be in breach of that agreement, but not because he has proposed a variation. I therefore reject this ground of complaint by the Defendants. Proposed further amendments of the Defence After Mr Lin had concluded his closing submissions, Mr Chan sought leave to further amend the Defence by raising a new plea of estoppel along the lines of paragraph 22 of the Defendants Closing Submissions. Mr Lin opposed the application on the grounds that (i) it was late, (ii) the facts allegedly giving rise to the estoppel were not properly pleaded (in particular in respect of the elements of clear and unequivocal representation and reliance), and (iii) estoppel was fact sensitive and the Plaintiffs were deprived of the opportunity to cross examine the 1st Defendant on matters relevant to the proposed estoppel plea. I accept Mr s submissions and refuse the Defendants application to amend the Defence as sought. Conclusion For the reasons stated above, I grant a declaration that the Defendants were entitled to, and did validly, forfeit the initial deposit of HK$500,000.00 paid by the Plaintiffs under the Agreement. I do not consider it appropriate to grant any declaration that the Plaintiffs are liable to pay to the Estate Agent the commission of HK$316,800.00, or order that such payment be effected. These are matters between the Plaintiffs and the Estate Agent. Nor do I consider it appropriate to grant any declaration that the Defendants are entitled to be indemnified by the Plaintiffs of any liability to the Estate Agent, in the absence of proof that the Defendants are in any way liable to the Estate Agent. I shall however give liberty to the Defendants to apply for assessment of damages should any claim be made by the Estate Agent against the Defendants for payment of the commission under the Agreement (see Wong Bik Ching v. Yu Hon Chung [1997] 4 HKC 38 at 49). The Plaintiffs claim is dismissed. The Plaintiffs shall also pay the Defendants costs of this action to be taxed if not agreed. Lastly, it remains for me to thank counsel for the able assistance that they have rendered to the court. (Anderson Chow SC) Deputy Judge of the Court of First Instance High Court Mr Kenny C P Lin, instructed by Messrs Mike So, Joseph Lau & Co, for the Plaintiffs Mr Jeremy S K Chan, instructed by Messrs Ma Tang & Co, for the Defendants In the Agreement, the word in the square bracket was seller , which I consider to be a mistake. 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