Douglas Ltd v. Resources Main Enterprises Ltd
Read the full judgment text of CACV 214/1997 on BabelCite. This Court of Appeal judgment was delivered on 30 March 1998.
1. The critical issue for our consideration is: in the case of a sale and a sub-sale of property, up to when may the vendor terminate the head contract effectively as against the confirmor and the sub-purchaser. For this plain question, it is only necessary to give the following principal events: On 1 March 1994, Douglas Limited (the Vendor) agreed to sell to Resources Main Enterprises Limited (the Confirmor) a residential detached house erected on Sub-section 300 of Section C of Lot No. 1945 in
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IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL 1997, No. 213
------------------- 1997, No. 214
------------------- Coram: Hon Nazareth, V.-P., Liu and Rogers, JJ.A. in Court Dates of Hearing: 12 and 13 March 1998 Date of Handing Down Judgment: 30 March 1998 ---------------------- J U D G M E N T ----------------------- Liu, J.A.: 1. The critical issue for our consideration is: in the case of a sale and a sub-sale of property, up to when may the vendor terminate the head contract effectively as against the confirmor and the sub-purchaser. For this plain question, it is only necessary to give the following principal events: On 1 March 1994, Douglas Limited (the Vendor) agreed to sell to Resources Main Enterprises Limited (the Confirmor) a residential detached house erected on Sub-section 300 of Section C of Lot No. 1945 in Demarcation District No. 7, Tai Po, New Territories (the property) for $20 million. The sale was evidenced by an agreement for sale and purchase in writing of even date (the Head Contract) which provided for payment of, in all, a 30% $6 million deposit, and completion 21/2 years later on 31 August 1996, at noon. Time was made of the essence of the Head Contract. By an agreement in writing for a sub-sale dated 31 March 1996 (the Sub-Contract), the Confirmor sub-sold to Ji Shan International Investment Limited (the Sub-Purchaser) the property with its said detached house known as No. 6, 8th Street, Hong Lok Yuen, Tai Po, New Territories, for $15,360,000. A 10% deposit in the sum of $1,536,000 was paid. Out of the 10% deposit, $180,000 was paid to the solicitors for the Confirmor as stakeholders to be released upon completion for the discharge of the then existing mortgage. Completion was also to take place on 30 August 1996 but at 11.00 am, an hour earlier. Likewise time was made of the essence of the Sub-Contract. On 23 August 1996, the Confirmor requisitioned on title in respect of the front fence walls within the property. Property market in Hong Kong was on an upswing in mid-1997. The detached Hong Lok Yuen house on the property carried a market price of $32 million. Both the Vendor and the Confirmor were adamant that their attitude was not swayed by the rising property market. The judge found that the Confirmor deliberately tried to avoid completing the sale and the sub-sale. The Confirmor delayed instructions on split cheques to the Sub-Purchaser and was not a willing purchaser under the Head Contract. The judge concluded that the Confirmor was to blame and that its solicitors had some explanations to make. The Confirmor's solicitors did not respond to the enquiry from the Sub-Purchaser's solicitors made on 28 & 30 August 1996 as to how the cheques for completion were to be split under the Sub-Contract until 11.05 a.m. on 31 August 1996, shortly past the deadline. On account of the Confirmor's dilatoriness and conduct, Deputy Judge Beeson, as she then was, accepted the Sub-Purchaser's assignment and relevant cheques tendered at 12.15 on 31 August 1996 as good performance on its part to complete under the Sub-Contract. The judge rejected as a dishonest argument the Confirmor's contended absence of any intention to frustrate the Head Contract. On 31 August 1996, solicitors for the Confirmor faxed a letter of even date to the solicitors for the Sub-Purchaser at 12.59 p.m., complaining of the Sub-Purchaser's tender, late by 11/4-hour and terminating the Sub-Contract. In her judgment, the judge found that the Confirmor deliberately blocked the tender of the Sub-Purchaser by refusing to advise how cheques for completion were to be split in as well quantum as in payees and that the Sub-Purchaser was also denied instructions as to the identity of the recipient of the additional $176,000, representing the difference between the settlement balances of the Head Contract and the Sub-Contract. 2. Turning to what transpired between the Vendor and the Confirmor, on 31 August 1996, the Vendor's solicitors dispatched to the solicitors for the Confirmor a copy of its letter of that date to the solicitors for the Sub-Purchaser, informing the solicitors for the Sub-Purchaser that the Vendor would grant the Confirmor an extension for completion under the Head Contract to 1 p.m. on 2 September 1996. The Sub-Purchaser again attempted to complete on 2 September 1996 without success. On the same day, solicitors for the Confirmor reiterated that the Sub-Contract had been terminated and the 10% deposit of $1,536,000 forfeited. The tendered assignment was returned. Also on the same day, 2 September 1996, the Confirmor's solicitors faxed solicitors for the Vendor that the Confirmor was prepared to complete the Head Contract without the sub-sale and sought a deferment of the completion date to a week after its receipt of a reply from the Building Authority on the front fence walls. On 9 September 1996, solicitors for the Vendor faxed solicitors for the Confirmor that an extension of 7 days was granted to close of business on 17 September 1996 and it offered to demolish the front fence walls before completion. The Vendor argued that these walls did not form part of the sale under the Head Contract. 17 September 1996 came and went, but the Confirmor failed to complete. The judge found that the Confirmor "was not a willing purchaser" under the Head Contract. The judge held that the requisition did not go to the root of the Vendor's title, that as a mere technical breach of the Building Ordinance, the requisition did not affect the house and that the Confirmor raised the requisition in bad faith. It became ill from the Confirmor to claim that the Vendor was in breach; less could it lawfully compel the Vendor to assign. It is difficult to visualise what right could accrue to the Confirmor for passing on to the Sub-Purchaser. On 1 November 1996, solicitors for the Vendor faxed solicitors for the Confirmor accusing the Confirmor of manipulations in its attempts to avoid completion, in particular by its requisition on the front fence walls. Solicitors for the Vendor also charged that the report of the Confirmor's surveyor would appear to have been compiled without any site visit but on submitted photographs and that the reference to the property inspected was apparently typed on the report later. The description of the front fence walls as reaching 2 meters in height was grossly inaccurate. The copy Building Authority's letter on some fence walls supplied by the Confirmor was in part obliterated. The Confirmor was reminded that the Sub-Purchaser took no issue with the front fence walls. Nevertheless, a further extension to complete was granted to close of business on 5 November 1996. It was warned that no further request for extension would be entertained. On 4 November 1996, the Confirmor changed solicitors. On 7 November 1996, solicitors for the Vendor granted to the new solicitors for the Confirmor until noon of 9 November 1996 to complete. At 11.47 a.m. on 9 November 1996, solicitors for the Vendor received a fax from the new solicitors for the Confirmor. The fax bore a date of 4 November 1996. It was a two-page letter, interspersed with allegations. The Confirmor still desired completion and proposed seeking "the independent advice of the Building Authority" or a court decision on the walls. Finally, on 13 November 1996, in a four-page reply to the solicitors for the Confirmor, the Vendor through its solicitors terminated the Head Contract. By a letter to the former solicitors for the Confirmor dated 25 November 1996, the Building Authority confirmed that the front fence walls in question were unauthorised but did not pose any danger, that the unauthorised structures did not affect the detached house or the property and that it was a low priority case for enforcement which would not be considered unless and until the structures became unsafe and dangerous. It should also be mentioned that some years back in December 1995, another company of which the Confirmor was a director sued for the return of its deposit on the same ground, viz the illegality of similar front fence walls. Finally, on 8 January 1997, the new solicitors for the Confirmor intimated that another firm of solicitors would be instructed to deal with litigation and repeated the Confirmor's stance that it was not prepared to complete the Head Contract on 9 November 1996 for the Vendor's failure to prove a good title to the property. It persisted in its allegation of illegality that the mere presence of the front fence walls together with the associated gate posts would be enough to clog the title. 3. As between the Vendor and the Sub-Purchaser, by a letter of 31 August 1996 to the solicitors for the Confirmor, copied to the solicitors for the Vendor, solicitors for the Sub-Purchaser placed on record that the Sub-Purchaser accepted the Vendor's title and was willing to complete. But the Confirmor, nevertheless, raised and continued to maintain its requisition with the Vendor. On 12.15 p.m. on 31 August 1996, solicitors for the Sub-Purchaser tendered the balance of the purchase price with an assignment to the solicitors for the Confirmor for completion of the Sub-Contract. Completion was refused and, as found by the judge, wrongly refused. On two subsequent occasions, the 4 September 1996 and 11 September 1996, by letter solicitors for the Sub-Purchaser informed solicitors for the Vendor that the Sub-Purchaser would fulfill all the obligations of the Confirmor under the Head Contract and asked for a direct conveyance of the property to itself. In their reply of 9 September 1996, solicitors for the Vendor were firm that the Vendor would not be prepared to complete except with the Confirmor. The reply was in these terms: "[The Vendor] is willing to assign the legal title of the captioned premises to [the Sub-Purchaser] should the said Confirmor be willing to complete." By a further letter dated 20 September 1996, solicitors for the Vendor reminded solicitors for the Sub-Purchaser that there was no privity of contract between the Vendor and the Sub-Purchaser and that the Sub-Purchaser's interest was, after all, defeasible. The judge found that in the extensions, time was no longer of the essence of the Head Contract. Finally, on 25 September 1996, the Sub-Purchaser instituted proceedings against the Confirmor and the Vendor for specific performance and other relief. The judge rejected as irrational the Vendor's contention that since the Confirmor was not entitled to specific performance, the Sub-Purchaser could not seek specific performance against the Vendor. She said:
4. The judge granted specific performance to the Sub-Purchaser against the Vendor under the Head Contract with consequential relief. The judge refused to declare that the Vendor was entitled to rescind the Sub-Contract and order forfeiture of the $6 million deposit or damages to be assessed. Costs were awarded against the Vendor in favour of the Sub-Purchaser in its action. The Confirmor was ordered to pay costs of the Vendor in its action. From these orders and determinations the Vendor now appeals. 5. Despite the rising property market, it has never been suggested that there was any collusion between the Vendor and the Confirmor. In the submitted ulterior motives, the Vendor and the Confirmor were merely said to be seeking to look after their own skin. In this case, there was no claim that it was unconscionable of the Vendor to take any steps or actions other than those for the purpose of completing the Head Contract alone with the Sub-Purchaser. The Vendor explains that completing with only the Sub-Purchaser would expose it to a higher litigation risk and place it in a less advantageous position. I am persuaded that without the benefit of hindsight after the decision of the judge, when driven into making an instant valued assessment of the situation, the Vendor was then adopting a legitimate option in refusing to complete the Head Contract with the Sub-Purchaser alone. I do not propose to rehearse here the analysis so ably made by Mr Chan, leading counsel for the Vendor, on the risk of litigation and his lay client's election from the options then open to the Vendor, without the findings of Madam Justice Beeson made much later in August 1997. 6. To recapitulate: at 12.59 p.m. on 31 August 1996, the Confirmor lost no time in terminating the Sub-Contract with the Sub-Purchaser. The Confirmor sought completion with the Vendor without the sub-sale. The Confirmor was desirous of and requesting an extension for completion. In all, four extensions had been granted by the Vendor: to 2 September 1 p.m., close of business on 17 September 1996, close of business on 5 November 1996 and finally noon 9 November 1996. Between the first and the second extensions granted by the Vendor to the Confirmor for completing the Head Contract, the Sub-Purchaser sought a completion of the Head Contract with the Vendor on 4 September and 11 September 1996 respectively. After the expiry of the second extension granted for completing the Head Contract, on 25 September 1996 the Sub-Purchaser issued a writ against the Confirmor and the Vendor for specific performance. It is to be noted that the writ of the Sub-purchaser for specific performance of the Head Contract was not against the Vendor alone; the Confirmor was also joined. 7. After the writ, there were two further extensions granted by the Vendor to the Confirmor to complete the Head Contract on 5 November and 9 November 1996 respectively. After the receipt of a two-page letter from the solicitors for the Confirmor at 11.47 on 9 November 1996, the last extended date for completion of the Head Contract, by a four-page reply dated 13 November 1996, in which a multitude of allegations were refuted, the Vendor through its solicitors finally terminated the Head Contract. The Vendor was also having to seriously evaluate or re-evaluate the impact of the Confirmor's termination of the Sub-contract on 31 August 1991. The last extension expired on 9 November 1996 and the Vendor terminated the Head Contract 4 days later on 13 November 1996. 8. If the termination of the Sub-Contract by the Confirmor was unlawful and invalid as it was later decided by Madam Justice Beeson, sitting as a Deputy Judge of the High Court, the question to be answered must therefore be whether the Vendor was entitled to refuse to complete the Head Contract with only the Sub-Purchaser in between the second extended date for completion, i.e. 17 September 1996, and the grant of the next extension to complete the Head Contract on 1 November 1996. Put another way: whether in the same period the Vendor could be lawfully compelled to convey so as to allow the Sub-Purchaser to seek specific performance in the shoes of the Confirmor. The Sub-Purchaser demanded completion of the Head Contract by writ issued on 25 September 1996. Prior to the expiration of the second extension to 17 September 1996, on 4 September 1996, the Sub-Purchaser sought "to obtain an assignment of the captioned property" from the Vendor. On 11 September 1996, the Sub-Purchaser again sought completion by the Vendor, reiterating its stance as follows:
9. The Sub-Purchaser claimed through the Confirmor. If the Confirmor could not lawfully compel the Vendor to complete, there was little for the Sub-Purchaser to inherit. Was the Vendor effectively deprived, at least, by the writ of the Sub-Purchaser issued on 25 September 1996 of its right to grant any further time to complete the Head Contract to the Confirmor after the expiry of the second extension on 17 September 1996? And if the Vendor was entitled to grant further extensions as it did in this case twice again, on 1 November 1996 to 5 November 1996 and finally on 7 November 1996 to 9 November 1996, was it entitled to terminate the Head Contract some 4 days later after the last extension on 13 November 1996? 10. The Sub-Purchaser concedes, as it was held by the judge, that the Confirmor was not entitled to insist on the requisition it made. It is also conceded by Mr Chain, counsel for the Sub-Purchaser, that if the Vendor had accepted a repudiatory breach of the Confirmor before the Sub-Purchaser offered to fulfill the Confirmor's obligations under the Head Contract, the Head Contract would have been validly terminated between the Vendor and the Confirmor and the Sub-Purchaser would not have been entitled to specific performance as against the Vendor in the shoes of the Confirmor. 11. There is no authority on this point. Probably, as Mr Chain explains, in general, little precious time would be spared after a confirmor's repudiatory breach, for a sub-purchaser to offer to discharge the full obligations of the confirmor in default before the vendor terminates the head contract. Both the Vendor and the Sub-Purchaser rely on first principles, within a very narrow compass, of Equity's intervention in the fictional relationship between a vendor and a sub-purchaser. This appeal is not concerned with the broad equitable principles of decreeing specific performance for unjust conduct of the parties or special features in a given case. 12. The Confirmor was indeed not entitled to insist on its requisition. It does not follow that every time there is an illegal structure on the property to be assigned, a vendor should be invariably regarded as having failed to prove a good title. All that is required of a vendor in conveyancing is for him to show a good title free from any incumbrances. As to the front fence walls, there was no genuine risk of any enforcement action and hence there was no real possibility of any charge on the property to be levied by the Building Authority as a result of non-compliance with any notice to demolish. Moreover, time and again the Vendor had offered to demolish the front fence walls before completion. The Confirmor could itself have the same demolished immediately after completion. These front fence walls did not affect the structure of the property or the house. Enforcement action was not a reality. How could it be right for the Confirmor to claim, in these circumstances, that its requisition went to the root of the Vendor's title of the property under the Head Contract? The judge rightly decided that it did not. 13. There was no privity of contract between the Vendor and the Sub-Purchaser who was not entitled to sue the Vendor on the Head Contract. In a sub-sale, Equity has modified the relationship. First, in a sub-sale such as the Sub-Contract, the Sub-Purchaser's right to enforce the Head Contract against the Vendor is substantially the same as that of an assignee of the benefit of a contract. See para. 914, p. 534, Vol 44(1) Halsbury's Laws of England, 4th Edn (Reissue). If the Confirmor had no right to compel the Vendor to convey, the Sub-Purchaser could not enforce the Head Contract. Let me begin with the position between a vendor and a confirmor. In Shaw v. Foster, (1872) LR 5HL 321 at p. 338, Lord Cairns said this :
14. At pp. 349 and 350, Lord O'Hagan reminded us of what a vendor might do:
15. At pp. 356 to 357, Lord Hatherley, LC observed:
16. Therefore the Vendor had a "paramount right" "to protect [its] own interest as vendor of the property", and "there [were] many uncertain events to happen before it [would] be known whether [the Vendor] would ever have to convey", and "[it retained], for certain purposes, [its] old dominion over the estate." Until the Vendor could lawfully be compelled to convey, it continued to enjoy these rights. 17. For the inter-relationship between the Confirmor and the Sub-Purchaser and their respective positions, Tipping, J. in MacDonald v. Issac Construction Company Limited [1995] 3NSLR 612 at p. 619 offered the following analysis:
18. The Sub-Purchaser relies on Khatijabai Jiwa Hasham v. Zenab, [1960] AC 316 for the preposition that the issuance of a writ in this case was indicative of the Sub-purchaser's intention to tender for completing the Head Contract with the Vendor. Pp. 329-330 in the judgment of their Lordships in the Judicial Committee as delivered by Lord Tucker, so counsel for the Sub-Purchaser submits, contained an oblique reference to the exercise of a party's right to seek specific performance by writ. I have assumed for the purposes of this appeal that the writ issued by the Sub-Purchaser on 25 September 1996 had this submitted effect. What is of interest to note is p. 330 at which the Judicial Committee had this to say:
19. The passage in Specific Performance, 2nd Ed. by Jones and Goodhart, p. 214 relating to a head contract having been "discharged by agreement between the vendor and the purchaser" has no direct bearing on the question for our consideration in this appeal. The Vendor and the Confirmor did not agree to discharge the Head Contract. 20. As against a sub-purchaser, up to what time may a vendor exercise his paramount right to protect his own interest as the vendor of the property? Until when would a vendor retain his old dominion over the estate as against a sub-purchaser? When did the binding date for completion arrive in this case? When could the Vendor in this case be lawfully compelled to convey? That is the critical question. The answers must be: up to the contract date for completion if time is of the essence and up to a reasonable time after the service of a notice to complete if time is not of the essence. For the analysis I am about to make, the completion date to which the Vendor was lawfully committed arrived not on 9 November 1996, but after a notice to complete within a reasonable time, thus making time of the essence. The Vendor could not be lawfully compelled to convey earlier. In his Revised Skeleton Submission, Mr Chain concedes the following general principle:
21. Mr Chain must have, at least, also conceded that the right of the Sub-Purchaser could not be, so to speak, crystallised before the original completion date under the Head Contract, i.e. noon 31 August 1996, otherwise the Vendor could have had no paramount right to protect its own interest, otherwise the Confirmor's interest could not have been said to be defeasible upon a lawful cancellation of the Head Contract, and otherwise the fictional interest of the Sub-Purchaser, in equity, would not have been more vulnerable than that of the Confirmor's. Before noon 31 August 1996, the contract date, the Vendor could not be lawfully compelled to complete. If the Vendor's paramount right to protect its interest continued to be exercisable or the Confirmor's right and that of the Sub-Purchaser in equity continued to be defeasible right up to the original contract completion date under the Head Contract when time was of the essence, it must follow that similarly the subsistence of the Vendor's right or the defeasibility of the right of the Confirmor and hence the Sub-Purchaser in this case would extend beyond any deferred completion date when time was no longer of the essence. There were 4 extensions, and time was no longer of the essence. Could the Vendor be lawfully compelled to convey before the expiration of a reasonable time after 9 November 1996? What was the position? The last extension was up to noon of 9 November 1996. In between the second extension to 17 September 1996 and the granting of the third extension on 1 November 1996 to 5 November 1996, there was a lapse of over 1 1/2 months. Had the interest of the Sub-Purchaser's ceased to be a defeasible one by the time of its writ so as to entitle it to step into the shoes of the Confirmor for the purpose of enforcing completion against the Vendor under the Head Contract? After the first extension expiring on 9 September 1996, the Vendor extended completion for the second time to 17 September 1996. The Confirmor had sought a longer extension to one week after its receipt of a reply from the Building Authority. When the Vendor gave its second extension, it threatened to treat the Head Contract "as repudiated and [the Confirmor's] deposit paid to [the Vendor as] forfeited". That was an empty threat which was constantly made but never taken seriously. Time was never thereby made again essence of the contract. It was so found by the judge. The Vendor was apparently concerned with the unauthorized structures and wished to complete without any incident or litigation. When the Confirmor failed to complete on 17 September 1996, as time was "no longer of the essence", his breach was not a repudiatory breach although it was still a breach which might give rise to a liability to pay damages, if sustained, for delay. See para. 21-015 at p. 1034 and para. 24-001 at p. 1149, Vol. 1, Chitty on Contracts, 27th edn. and S. 11 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23. A mere lapse of time is not by itself essential to the substance of a contract. As for the Vendor, as time was not of the essence, it could not be lawfully compelled under the Head Contract to convey as at or soon after close of business on 17 September 1996 and it continued to retain its old dominion over the property. Because the Confirmor could not lawfully compel the Vendor to convey after the expiry of the second extension, the Confirmor was not entitled to seek specific performance and the Sub-Purchaser could step into nowhere. In this case, in order to make time of the essence again and failure to complete a repudiatory breach, the Vendor must serve a notice demanding completion by the Confirmor within a reasonable time. Of course, the Confirmor could also sue for specific performance if a clear intention was evinced on the part of the Vendor not to complete the Head Contract, but this was not such a case. The Vendor did not serve any notice to complete but instead it was insisting on completing the sale to the Sub-Purchaser in a tripartite way with the Confirmor. The 8 days from 17 September 1996 (the second extension date) to 25 September 1996 (the date of the Sub-Purchaser's writ) could hardly be taken as a period of undue delay to prompt the Vendor to serve such a notice making time of the essence after the expiry of the second extension. After all, the second extension was itself granted on 9 September 1996, 7 days after the expiry of the first extended time for completion on 2 September 1996. It was but 8 days from the expiry of the second extension to the writ. Extension was granted with a threat to terminate at least as from the second extension, but the judge found that time was not restored to be of the essence, and her finding still stands. In the known circumstances, it seems reasonably clear that neither party truly wished to set a repudiatory deadline. Moreover, time is itself a "non-essential" term of the contract, and "one party cannot unilaterally vary the terms of a contract by turning what was previously a non-essential term of the contract into an essential term". See para. 21-014 at p. 1033, Vol 1 Chitty on Contracts, 27th edn. When the second extension was granted to 9 September 1996, the Confirmor was merely given 7 days to complete. Evidently, time for completion could have been turned by the Vendor or the Confirmor, whoever was/were innocent, into "an essential term" by serving a notice to complete within a reasonable time. The Vendor had throughout been pressing the Confirmor for completion of the Head Contract and vice versa with charges and counter-charges. Only by a letter from its solicitors to the Confirmor's solicitors dated 1 November 1996, over 11/2 months later, did the Vendor belatedly give notice to complete within just four days on or before the 5 November 1996, with a similar accompanying threat, viz. "confirmed instruction from [the Vendor] that it would exercise its contract right to rescind the sale and purchase under the [Head Contract]." The Confirmor was warned that "no request for further extension of time for completion would be entertained." It could be argued that the four days up to 5 November 1996 given on 1 November 1996 were not reasonable enough to make time of the essence. In any event, after the Confirmor's change of solicitors on 7 November 1996, further time for completion was unceremoniously given to noon of 9 November 1996 i.e. two days later with a censure that "the change of solicitors at the eleventh hour [was] another attempt on the part of [the Confirmor] to frustrate completion of the sale and purchase." The Confirmor was again warned that [the Vendor] "would certainly exercise its contractual rights under the [Head Contract] without further reference to [the Confirmor's new solicitors]". Even though the Vendor's rescission on 13 November 1996 was not challenged for the short space of time between 9 and 13 November 1996, none of the letters for the four extensions had the effect of making time of the essence of the contract, and this was reflected in, as I have said, the judge's finding that "time was no longer of the essence". No attempt was made to complete after 13 November 1996, and the Vendor sued the Confirmor for breach on 27 November 1996. The Confirmor did not seek completion, but by its Counterclaim filed on 28 April 1997 sought damages, including a sum representing the $6 million deposit. The Head Contract was accepted by the Confirmor as terminated, though wrongfully, on 13 November 1996. The judge found that the Confirmor was not entitled to its requisition and had no genuine intention to complete. It is quite unnecessary to say more than what the judge found as the Confirmor's breach and what she ordered as costs against the Confirmor. With the long lapse of time since 13 November 1996 and the Confirmor's Counterclaim for only damages which were exclusively grounded on the Vendor's alleged failure to show a good title, the date of 13 November 1996 lost much of its significance when the Vendor issued its writ against the Confirmor for breach of the Head Contract. 22. Therefore, as at the date of the Sub-Purchaser's writ, the 25 September 1996, the Confirmor's failure to complete the Head Contract was not a repudiatory breach which would entitle the Vendor to rescind. The Vendor could not then lawfully cancel the sale without serving a notice to complete within a reasonable time; because time was not of the essence, nor could the Confirmor then lawfully compel the Vendor to convey. Thus, under the Head Contract the transaction had not reached a point at which the Confirmor could at all, even if innocent, lawfully rescind or compel the Vendor to complete. That the Confirmor had any crystallized position for the Sub-Purchaser to assume is clearly untenable. The time had simply not arrived for the Confirmor to lawfully compel the Vendor to perform the Head Contract. The Vendor's paramount right "to protect [its] own interest as vendor of the property" was still subsisting and it retained its "old dominion over the estate". The Confirmor's interest remained defeasible as was the parallel interest of the Sub-Purchaser's. Therefore, the mere issuance of the writ by the Sub-Purchaser on 25 September 1996 could not possibly affect the rights vis-a-vis the Vendor and the Confirmor. The Confirmor's defeasible right and that of the Sub-Purchaser's in equity were both liable to be defeated up to the time given to the Confirmor by a notice to complete, making time of the essence. 23. In this case, by 25 September 1996 time was no longer of the essence of the particular term for completion and no notice making time of the essence had been served. The failure of any party to complete by 17 September 1996 was not a repudiatory breach. Thus, even if the Vendor had been wrong in not completing on 17 September 1996, it could not have been lawfully compelled to convey. On the facts found by the judge, it would not be, so it seems, open to the Confirmor as a guilty party to support its Counterclaim by an assertion that the other party was in breach. Consequently the interest of the Confirmor and the Sub-Purchaser remained defeasible and was finally defeated by the Vendor's termination of the Head Contract on 13 November 1996. In my view, the defeasible interest of the Confirmor was thus put an end to, as was that of the Sub-Purchaser's. Equity should not be invoked to interfere with the clear contractual right enjoyed by the Vendor. See Union Eagle Limited v. Golden Achievement Limited, [1997] 1 HKC 173 at p. 178 H-I to p. 179 B-C. 24. For all these reasons, I would allow the appeal, set aside the order of the Deputy Judge. I would order that the Sub-Purchaser's claim against the Vendor be dismissed and make an order nisi that the Sub-Purchaser do pay the Vendor's costs here and below, including those for the Order 86 summons. 25. As to the Vendor's appeal against the Confirmor, I would also allow the appeal and set aside the order of the judge. I would declare that the Confirmor was in breach of and/or repudiated the Head Contract and that the Head Contract has been duly terminated by the Vendor. Forfeiture of 30% deposit was clearly penal as it is conceded by Mr Chan, leading counsel for the Vendor. Counsel invites us to make an order for loss and damages to be assessed by a Master. I would so order. I would also make an order nisi for costs against the Confirmor here and below. 26. In passing, as a matter of practice, if the Sub-purchaser succeeded in the appeal, I would not be prepared to recommend any departure from the form in Atkin's Court Forms, 2nd Ed. Vol. 37 (1995) at p. 110 unless the Vendor and the Sub-Purchaser would otherwise agree by consent. Rogers, J.A. : The facts 27. In this appeal the Plaintiff in the main Action was the sub-purchaser by sub-sale from the confirmor of a house in Hong Lok Yuen. A sale and purchase agreement which I shall refer to as the Head Agreement had been made on the 1st March 1994 between the vendor (the 2nd Defendant in the main Action) and the confirmor (the 1st Defendant in the main Action). The completion date was put as 12 noon on the 31st August 1996. That was over 2 years after the making of the Head Agreement. The explanation for this was found by the Judge below to be that the confirmor was a property speculator and thus can be expected to have anticipated making a profit on the purchase by selling on at a higher price. However on 31st March 1996 the confirmor entered a contract for sub-sale with the sub-purchaser for a considerably lower sum than that of the Head Agreement. Whereas the consideration under the Head Agreement was $20 million. The sub-sale was for $15.36 million. Thus the confirmor stood to lose $4.64 million should the 2 sale agreements be completed. Completion of the sub-sale agreement was to take place by 11 a.m. on 31st August 1996. It should also be mentioned that during the course of 1994 the confirmor had paid a total of $6 million by way of deposit. 28. The matter then progressed to the end of August 1996. In summary as found by the Judge, the confirmor's solicitors had delayed giving instructions to the sub-purchaser's solicitors as to the split of the cheques for the consideration. Having thus delayed matters, the confirmor's solicitors then purported to forfeit the sub-purchaser's deposit on the basis that payment was late. 29. As regards the vendor, the confirmor had on 23rd August raised requisitions relating to a boundary wall. The confirmor's solicitors concluded in one of the letters of the 31st August "..... our client will only complete the purchase after all our requisitions have been satisfactorily answered by you." It can be noted at this stage that the sub-purchaser had indicated that the sub-purchaser accepted the vendor's title and was willing to complete the transaction. 30. There was no completion on the 31st August. The vendor's solicitor wrote to the sub-purchaser's solicitors that day indicating that the vendor was willing to complete the sale of the property to the confirmor (the sub-purchaser under the Head Agreement) until 1.00 p.m. on the 2nd September 1996. 31. Completion did not take place on the 2nd September; that day the confirmor's solicitors still maintained the requisition in respect of the boundary wall. As regards the sub-purchaser, the confirmor's solicitors reiterated that because of the sub-purchaser's delay the sub-sale was rescinded. 32. On the 4th September, the sub-purchaser's solicitors wrote to the vendor's solicitors stating that their client was willing and prepared to pay the sum of HK$14,000,000 to obtain an assignment of the property. That letter went on to say that the sub-purchaser did not and would not raise any objection to any alleged illegal structures; that clearly included the requisition raised by the confirmor in respect of the boundary wall. The solicitors also asked for a response by the close of business on the 6th September. Finally, reference was made to proceedings having been commenced against the confirmor and an offer was made to join the vendor as a party if such was considered to be necessary. 33. On the 9th September, the vendor's solicitors wrote to the sub-purchaser's solicitors to say that the vendor was willing to complete the sale provided the confirmor was a party to the proceedings. Whilst the sentiment was expressed that there was no merit in the objection raised in respect of the boundary wall, concern was expressed that the confirmor might choose to repudiate "the Head Agreement". By that expression, it can be understood that the confirmor might treat the Head Agreement as repudiated. 34. On the same day, the vendor's solicitors also wrote to the confirmor's solicitors refuting the contentions in respect of the boundary wall and making reference to the sub-purchasers stance as to willingness to complete in the light of which it was said that the confirmor's reason for not completing was "unreal and fanciful". The confirmor was asked whether it would be willing to complete if the wall were removed. Finally the confirmor was put on notice that should it fail to complete the sale and purchase by close of business on the 17th September, the vendor would treat the Head Agreement as repudiated and the deposit would be forfeited. 35. The sub-purchaser's solicitors wrote on the 11th September to urge the vendor to complete directly with the sub-purchaser and concluded by saying that if necessary proceedings would follow. 36. By letter dated the 20th September the vendor's solicitors stated that there was no privity of contract between the vendor and the sub-purchaser. The confirmor's interest under the Head Agreement was said to be defeasible but it was then said :
Commencement of Proceedings 37. The next important step was on the 25th September when the sub-purchaser issued the present proceedings naming the confirmor as the 1st Defendant and the vendor as the 2nd Defendant. The claim against the Defendants was for specific performance of the Head Agreement and the Sub-sale Agreement. The writ was served on the vendor's solicitors the next day. 38. The situation on the 25th September was therefore that in respect of the Head Agreement, the time for completion in the Agreement and as extended finally by the letter of the 11th September had expired. Subject to the validity of the objection in respect of the boundary wall the confirmor was in breach. The sub-purchaser had by that time not only offered on more than one occasion to fulfil the obligations to the vendor but had commenced these proceedings for specific performance. In my view, if the sub-purchaser's right to specific performance had not, as between itself and the confirmor and vendor, crystallised prior thereto it crystallised at least on the commencement of proceedings. The sub-purchaser had an equitable interest in the land and could for example have sought to enforce that by injunction : see the speech of Lord Tucker in Hasham v. Zenab [1960] AC 316 at 329. 39. The vendor extended the time for the confirmor to complete the Head Agreement on 2 further occasions. By letter of the 1st November the time for completion of the Head Agreement was extended to "before the close of business in the 5th November" and by letter of the 7th November the time was extended to before noon on the 9th November. The confirmor never attempted to complete the Head Agreement and on the 13th November the vendor accepted the confirmor's repudiation and terminated the Head Agreement. 40. The sub-purchaser having brought these proceedings against the vendor, the Judge below granted an order for specific performance. This appeal is against that order. The sub-purchaser's right of Action 41. As a general rule a sub-purchaser has substantially the same rights to enforce a contract as an assignee of the benefit of a contract. In the case of a sale of land that entails the ability of the sub-purchaser to obtain an order for specific performance of the sale. Although it is not necessary for the confirmor to be joined as a party to the proceedings it is sometimes necessary or desirable for him to be joined particularly if it is important that he should be bound by the decision. The position is set out in Volume 44(1) of Halsbury's Laws of England para 914 and Spry on the Principles of Equitable Remedies (5th Edition) 86. One of the early cases in which this position was referred to was Shaw v. Foster (1872) L.R. 5HL 321 e.g. per Lord Cairns at pages 338-9. For a recent exposition I would refer to Tipping, J. in McDonald v Issac Construction Co Ltd (1995) 3 NZLR 612 at 619 line 31 onwards. Thus far however, there is little or no dispute between the parties. Vendor's termination on the 13th November 42. Mr Chan S.C. on behalf of the appellant vendor argues however that specific performance should not have been ordered. He says that the Head Agreement was liable to determined because of breach by the confirmor and once it was determined by the vendor it could not be open to the sub-purchaser to seek specific performance as the sub-purchaser had no privity of contract with the vendor; once the contract had been determined, as the vendor was entitled to do under the contract, there was no contract to enforce. In support of that he relies on the Judgment of Tipping, J. where the Judge pointed out that the equitable right of the sub-purchaser to seek specific performance would be defeated if the Head Agreement between the vendor and confirmor were cancelled or otherwise went off for failure of a condition. 43. The short answer to that argument is that it is necessary to look at the time. The vendor had extended time for completion of the Head Agreement first to the 2nd September and later to the 17th September. It was not until the 13th November that the vendor purported to determine the contract. However the sub-purchaser had sought to fulfil all the obligations of the confirmor on at least 2 occasions namely the 4th September and the 11th September. There was nothing personal to the confirmor about those obligations. Finally on the 25th September the sub-purchaser had sued for specific performance. It cannot be said that the Action for specific performance was premature. Although time may not have been of the essence, the time for performance had passed. That had happened on the 17th September. The Vendor's solicitor's letter of the 20th September stated as I have noted already :
44. Hence, time for performance had arrived and passed and even if time were not of the essence and damages at law for breach of contract could not be obtained, or indeed there had not been a repudiatory breach entitling the other party to terminate the Head Agreement, specific performance was still a remedy open. 45. Even if the time for performance had not passed the Court may still entertain an action for specific performance. This point was dealt with by Lord Tucker in Hasham v. Zenab at page 330. The Learned Judge there made reference to a number of authorities and cited a passage in Williams on Vendor and Purchaser which states that specific performance is not limited to cases in which damages would be recoverable at law. One of the other cases to which he referred was Marks v. Lilley [1959] 1 W.L.R. 749 @ 753. There the Judge had cited with approval the proposition that the cause of action for specific performance is not a breach of the contract, such as alone gives rise to an action at law for damages, but is the duty considered in equity to be incumbent on the Defendant of actually doing what he promised by the contract to perform. Clearly the sub-purchaser had sought to exercise its rights to have specific performance long before the Head Agreement was terminated. In those circumstances the vendor was in no position to terminate the sub-purchaser's rights. In particular it is clear that unlike rescission, determination of the contract for repudiatory breach does not relate back to the beginning of the contract but takes effect only from the determination. On the other side of the coin that line of authority demonstrates that the vendor would also have been in a position to seek specific performance, if it had so chosen, after the 17th September. Vendor' claim to be able to avoid the consequences of its breach of contractual obligations as to title 46. It was argued on behalf of the vendor however that it should not be compelled to assign the property. The basis of that was that, looking at the matter for the purposes of argument as of the 25th September if the vendor were in the circumstances to complete with the sub-purchaser it might thereafter have to face a claim for the return of the $6 million deposit by the confirmor and if the confirmor were to succeed the vendor will have sold the house for $6 million less that it had contracted for and the confirmor would end up with the $6 million deposit back and the benefit of the sub-purchaser's deposit of $1.536 million. 47. It became clear in the course of the argument that Mr Chan was putting this argument forward on the basis that the confirmor was maintaining that the vendor was in breach of its obligation to deliver good title by reason of the existence of the boundary wall. Mr Chan said in answer to a question from the Court that his case was founded upon the fact of this objection by the confirmor and if the confirmor had not been maintaining its requisition there would have been no difficulty. It was only because of this threat, the validity of which the vendor could not determine, that the difficulty arose. 48. In my view that argument is wrong for a number reasons. In the first place if the vendor were in breach of its obligation to give good title by reason of the existence of the boundary wall the liability to a claim from the confirmor would remain. But in this case the sub-purchaser had expressly said from the very beginning, on the 31st August, that it was prepared to take the title of the vendor. Importantly time for completion of the sub-sale was timed for an hour earlier than the Head Agreement. Thus there would be no risk that the sub-purchaser would refuse to complete after the Head Agreement had been completed and in that way leave the confirmor with the property with defective title and thus able to sue the vendor. Therefore even if the title offered by the vendor were defective, once the conveyance to the sub-purchaser had taken place the confirmor could not determine the Head Agreement because by then it would be too late. 49. Neither could any action for damages lie for the simple reason that the confirmor would have suffered no damage. Mr. Chan suggested that the damages would comprise return of deposit, the cost of stamp duty and estate agents fees as well as, in the case of a rising market, the difference between the contract price and the market price. But in view of the sub-sale which in the circumstances would have been completed no such damages could have been suffered by the confirmor. 50. In the third place the confirmor had been joined as party to the Action it was therefore bound by any decision. 51. Then as Mr Chain, who appeared for the sub-purchaser, pointed out the stand taken by the vendor at the time was that there was no breach of the requirement to give good title. That, incidentally, was also the finding of the Judge below and it is unnecessary for the purposes of this case to review that. All the time from 31st August 1996 until the 13th November 1996 the vendor maintained that the confirmor was in breach and had raised the requisition mala fide. In those circumstances the stand now taken by the vendor was inconsistent with the stand it took at the time in 1996. Hence according to the vendor's original stance there would be no danger of any liability to the confirmor because the vendor was not in breach. 52. However, on the footing that the vendor was wrong and there was a breach of the requirement to give good title because of the presence of the boundary wall or otherwise, that as I have already indicated is a liability that the vendor would have had to face in any event and was not altered in any way by conveying the land to the sub-purchaser. Indeed if the vendor were itself in breach it would not have been able to terminate the Head Agreement because it would not have been the confirmor who would have been in breach. Hence the vendor's argument that it had the contractual right to terminate the Head Agreement and thus prevent any order for specific performance at the behest of the sub-purchaser would fail for that reason also. 53. The result therefore is that if the vendor was at fault in failing to give good title it was not in a position to terminate the contract because there had been no breach by the confirmor. If however there was no defect in the vendor's title the vendor had nothing to fear. 54. Whilst of course the vendor can use the Head Agreement to protect its own interest, in this case Mr. Chan's argument was that that interest comprised the vendor "protecting" itself against the consequences of its failing to meet its contractual obligation in relation to title to the property being sold. However, the vendor would not have been able to do that as against the confirmor, so it should be in no better position to do it as against the sub-purchaser. 55. The same point put in another way is to say that if on the 25th September the confirmor had abandoned its insistence on the requisition and sought to complete before the vendor had sought to terminate the Head Agreement based on an alleged repudiation by the confirmor, the vendor would have been in no position to resist the confirmor's demand or a claim to specific performance. The crucial part of the present arrangement is that the sub-purchaser shall perform all the confirmor's obligations. What in effect would be happening is that each party would be held to its contract. Ground 4 56. Finally it is necessary to deal with Ground 4 of the Notice of Appeal against the Order of the Judge in so far as it orders that a sum of $850,000 is to be withheld from the amount paid to the vendor to be held by the Plaintiff's solicitors as stakeholders pending agreement on costs or taxation. Whilst objecting to that retention Mr Chan was emphatic that if specific performance were to be ordered he did not wish completion to be delayed pending taxation since that could take a considerable time. 57. Having considered the precedents in Atkin's Court Forms and elsewhere it is clear that the standard form of Order provides that the amount of the taxed costs is deductible from the purchase money see e.g. form 71 in Vol. 31 of Atkin's Court Forms and page 351 of Chancery Practice and Orders by Blandford, Jaque and Quint. Since that form of order would be unacceptable to the vendor in view of the delays in taxation, it seems to me that the Order made by the Judge that a set sum, having made what seems to me to have been a reasonable estimate of the Plaintiff's costs, be retained in safe custody pending taxation, was quite sensible. I for myself would have thought it appropriate that the Plaintiff should have been required to give an undertaking to use its best endeavours to proceed with taxation of its costs with all due dispatch, but in the circumstances the vendor could always apply back to Court if it considered there was undue delay. 58. In all the circumstances I consider that the Judgment below was correct and I would dismiss this appeal. Nazareth, V.-P.: 59. As is clear from the judgements of my Lords, the law as to specific performance in contracts of sale and purchase of property between sub-purchasers and vendors is not entirely clear in the context of this case. Indeed, Mr Chan opened his submission by stating that there was no direct authority on the point. Mr Chain for his part contended that it was simply a matter of applying fundamental principles of the law of contract. 60. However all of that may be, it seems to me that as the judge found, and has not been challenged, time ceased to be of the essence of the contract upon the first extension being granted by the vendor on 31 August 1996. It was not made of the essence again. Therefore, I agree with Liu JA that notice to complete by a time specified was required before the confirmor could be in repudiatory breach of an obligation to complete within that time. No such notice was given. Nor has it been suggested that there is any other basis upon which a repudiatory breach for failure to complete can be founded. 61. It follows that the confirmor was not entitled to specific performance when this was claimed by the sub-purchaser. 62. Upon that basis, it seems to me that the sub-purchaser must fail; it cannot be in a better position than the confirmor, in whose shoes it must stand. 63. The matter becomes clearer when the equitable position is examined. And in the absence of privity of contract, it is upon that equitable position that the sub-purchaser seeks relief, which is in the nature of an exception to the purely contractual position. It is clear from the authorities cited by Liu JA that although the purchaser was regarded as the real beneficial owner and the vendor as trustee of the property, the vendor was not a mere dormant trustee but one -
It is also said in that case at p.349 that the
and at p.350 that
64. In MacDonald v. Issac Construction Co Ltd [1995]3 NZLR, Tipping J said in relation to a sub-purchaser's interest in land that:
65. Finally from Hasham v. Zenab [1960] AC 316; 329 it appears that circumstances may justify the intervention of a court of equity to grant a purchaser who has an equitable interest in the land an order for specific performance. The parties to this appeal did not direct us to any such circumstances. But it is made clear at p.330 that the court will not compel a party to perform his contract before the contract date arrives. In the context of the facts here, that seems to me to be before the time by which the vendor or confirmor came under an enforceable obligation to complete - which had not been reached here. 66. If, nonetheless, the situation was such that somehow the court would have discretion in equity to grant specific performance, clearly such discretion was simply never exercised. If it had to be exercised by this Court, I cannot see that it could properly be exercised against the vendor in respect of whom there was no suggestion of collusion with the confirmor, which granted repeated extensions to enable the confirmor to complete, and which was placed in the difficult position described by Liu JA. The confirmor was itself found to be unwilling to complete. Above all, the vendor was, in my view, entitled to protect its interest in terms of Shaw v. Foster. 67. I would accordingly allow the vendor's appeal and make the orders proposed by Liu JA, including the costs order nisi. 68. By a majority, therefore, the appeal is so allowed and there will be such orders.
Representation: Mr Benjamin Chain inst'd by Laurence Pang & Co. for Defendant/1st Respondent. Mr Warren Chan & Mr K M Chong inst'd by M/s Ko & Co. for 2nd Defendant/Appellant. Messrs. Resources Main Enterprises Limited in person. Remarks: |