Super Keen Investments Ltd. v. Global Time Investments Ltd.

CACV000346A/1998

CACV 285/1998 and CACV 346/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEALS NOS. 285 AND 346 OF 1998

(ON APPEAL FROM HCCT NO. 71 OF 1997)

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Coram: Nazareth V-P, Mayo JA and Keith JA in Court

Dates of Hearing: 9 - 12 November 1999

Date of Handing Down of Judgment: 14 January 2000

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J U D G M E N T

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Keith JA (giving the judgment of the Court):

Introduction

1. This appeal concerns a large office building in Central. When the property market was on the rise in 1993 and 1994, the site on which the building was to be erected, together with the building itself, was sold a number of times at ever increasing prices. However, by the time the construction of the building had been completed, property prices had fallen, and the present litigation is the aftermath of that slump in the market.

The background facts

(i) The building contract. The building with which the case is concerned is the Kut Kee Building on the corner of Wellington Street and Peel Street. The contract for its construction was between Simpson Development Investment (HK) Ltd ("the developer") and K. & R. Wong Construction Co. Ltd ("the contractor"). It was dated 16 August 1993. The developer and the contractor were described by the trial judge, Findlay J, as "closely related". Indeed, the judge said that

".... Mr Peter Wong, who appears to have been an officer or employee of both companies, acted for the contractor and the [developer] at different times during the construction of the building contract."

The contract provided for the construction of the building to be completed by 30 June 1995, but the contract also permitted that date to be extended by the architect appointed under the contract. The contract named Gordon Yeung & Associates ("Mr Yeung") as the architect.

(ii) The agreements for the sale of the building. By a formal sale and purchase agreement dated 13 December 1993 ("the first agreement"), the developer agreed to sell the site on which the building was to be erected and the building itself (which we shall refer to collectively as "the building" for convenience) to Grand Million Development Ltd ("the Third Party"). The purchase price was $256m. The market was rising at the time, and by a formal sale and purchase agreement dated 8 April 1994 ("the second agreement") the Third Party agreed to sell the building to Global Time Investments Ltd ("the Defendant"). The purchase price was $405m. Within a few days, the building had been sold again: by a formal sale and purchase agreement dated 11 April 1994 ("the third agreement"), the Defendant agreed to sell the building to Super Keen Investments Ltd ("the Plaintiff"). The purchase price this time was $600m.

(iii) The date for completion of the sale agreements. All three agreements provided for the sale to be completed within a specified number of days of written notification that the occupation permit for the building had been issued. Although all three agreements made time of the essence, only the first agreement provided for when the construction of the building had to be completed by. It mirrored the date for the completion of the construction of the building laid down in the building contract. What it provided, in cl. 14, was that:

"....the building to be erected on the [site] shall be completed with Occupation Permit issued on or before 30 June 1995 subject to the usual architect's extension ...." (Emphasis supplied).

The words emphasised are the crucial words on which much of the argument on the appeal has turned.

(iv) The extension of time. On 16 June 1995 (two weeks before the construction of the building had to be completed by), the contractor applied to Mr Yeung for an extension of time of 309 days. On 29 June 1995, Mr Yeung purported to grant an extension of time of 294 days, thereby extending the date for the completion of the construction of the building from 30 June 1995 to 19 April 1996.

(v) The rescission of the agreements. In the meantime, the property market had begun to fall. Indeed, it was common ground that by April 1996 the value of the building was only $290m. The judge expressly found that, not surprisingly, the Plaintiff did not want to pay $600m. for the building. Although he did not say so in terms, it is likely that he thought that the Plaintiff was looking for ways to get out of the deal. Accordingly, on 10 November 1995, and despite the extension of time for the completion of the construction of the building, the Plaintiff's solicitors informed the Defendant's solicitors that if the third agreement could not be completed "within a reasonable time", the Plaintiff would rescind the third agreement. The Defendant did not complete the third agreement within what the Plaintiff claimed was a reasonable time, and on 17 February 1996 the Plaintiff's solicitors notified the Defendant's solicitors that the Plaintiff was rescinding the third agreement. On 11 April 1996, the Defendant's solicitors notified the Third Party's solicitors that the Defendant was rescinding the second agreement.

The nature of the proceedings

2. The Plaintiff had paid to the Defendant a number of deposits totalling $101,612,000.00 under the third agreement. Accordingly, the Plaintiff's claim against the Defendant was for the return of these deposits. For its part, the Defendant had paid to the Third Party a number of deposits totalling $100m. under the second agreement. Accordingly, the Defendant's claim against the Third Party was for their return. For its part, the Third Party claimed that the Defendant had not been entitled to rescind the second agreement. Accordingly, in the Third Party proceedings brought against it by the Defendant, the Third Party counterclaimed against the Defendant. It sought damages for the Defendant's wrongful rescission of the second agreement of $115m., being the difference between (a) the price which the Defendant had agreed to pay to the Third Party for the building, i.e. $405m., and (b) the market value of the building at the time of the Defendant's rescission of the second agreement, i.e. $290m.

3. One of the issues which Findlay J had to decide related to the exterior finish of the building. He rejected the claim which the Plaintiff had made against the Defendant, and which the Defendant had passed on to the Third Party, relating to the exterior of the building, and there is no appeal against the dismissal of those claims. However, Findlay J found in favour of the Plaintiff and the Defendant in their claims for the return of the deposits against the Defendant and the Third Party respectively, and he dismissed the Third Party's counterclaim against the Defendant. The Third Party now appeals against (a) the order that it should return the deposits totalling $100m. to the Defendant, and (b) the dismissal of its counterclaim against the Defendant for damages for the wrongful rescission of the second agreement. The Defendant appeals against the order that it should return the deposits totalling $101,612,000.00 to the Plaintiff, but it only pursues that appeal if the Third Party is successful in its appeal.

The causes of action

4. Findlay J did not find that the Defendant had been in breach of the third agreement, nor did he find that the Third Party had been in breach of the second agreement. Yet he held that the Plaintiff had been entitled to rescind the third agreement, and that the Defendant had been entitled to rescind the second agreement. It was on that footing that he ordered the Defendant to return the deposits totalling $101,612,000.00 to the Plaintiff, and the Third Party to return the deposits totalling $100m. to the Defendant. At first glance, it appears odd that he could find that the Plaintiff and the Defendant had been entitled to rescind the third and second agreements respectively, without finding a breach of contract on the part of the other parties to those agreements.

5. The answer lies in cl. 23(b) of each of the agreements. The clauses were in almost identical terms. We set out below cl. 23(b) of the second agreement, while at the same time reproducing in italics the differences in the third agreement:

"In the event of the [Third Party] [Defendant] becoming entitled to exercise any right of rescission under the [first agreement][second agreement], the [Third Party] [Defendant] shall, within seven (7) days after the [Third Party] [Defendant] becomes aware of the existence of such right, notify the [Defendant] [Plaintiff] in writing of such right, and irrespective of whether or not such notice has been given by the [Third Party] [Defendant], the [Defendant] [Plaintiff] shall notwithstanding any provisions herein contained to the contrary, be entitled to rescind this Agreement by serving written notice of rescission on the [Third Party] [Defendant] ...."

In other words, if the developer was in breach of the first agreement, in circumstances which gave the Third party the right to treat the first agreement as rescinded, the Defendant could rescind its agreement with the Third Party (i.e. the second agreement) and the Plaintiff could rescind its agreement with the Defendant (i.e. the third agreement). Putting it in another way, the Third Party did not have to be in breach of the second agreement to entitle the Defendant to treat the agreement as rescinded. The Defendant could treat the second agreement as rescinded if the Third Party was entitled to treat the first agreement as rescinded. Similarly, the Plaintiff could treat the third agreement as rescinded if the Defendant was entitled to treat the second agreement as rescinded.

6. Thus, the Defendant would have been entitled to rescind the second agreement if

(a) the developer was in breach of the first agreement, in circumstances which gave the Third Party the right to rescind the first agreement, and

(b) the Defendant had not lost its right to rescind the second agreement by the time it purported to do so.

The judge found for the Defendant on both these issues, which was why he ordered the Third Party to return the deposits totalling $100m. to the Defendant. On this appeal, Mr Edward Chan SC for the Third Party contended that the judge's conclusion on both these findings was wrong. As for the Plaintiff, the Plaintiff would have been entitled to rescind the third agreement if

(a) the Defendant had been entitled to rescind the second agreement, and

(b) the Plaintiff had not lost its right to rescind the third agreement by the time it purported to do so.

As we have said, the judge found in favour of the Defendant on (a) on the Defendant's claim against the Third Party. As it was, the Defendant did not allege that the Plaintiff had lost its right to rescind the third agreement. That was the basis, therefore, on which the judge found that the Plaintiff was entitled to the return of the deposits totalling $101,612,000.00 which it had paid to the Defendant.

The developer's breach of the first agreement

7. The critical question on this aspect of the appeal is whether the judge was right to conclude that the developer was in breach of the first agreement in circumstances which gave the Third Party the right to rescind the first agreement. The breach alleged was the developer's failure to honour its contractual promise, contained in cl. 14 of the first agreement, to cause the construction of the building to be completed and the occupation permit to be issued by 30 June 1995. The developer would have been in breach of that provision if the extension of time purportedly granted by Mr Yeung had not been "the usual architect's extension" within the meaning of that phrase in cl. 14 of the first agreement, and had therefore been of no effect.

8. Mr Ronny Wong SC for the Defendant and Mr John Scott SC for the Plaintiff (who have continued to represent the Defendant and the Plaintiff on the appeal) argued before the judge that the extension of time purportedly granted by Mr Yeung had not been "the usual architect's extension" for four reasons. They were described as the "four levels of challenge" to the extension. The judge summarised them in his judgment as follows:

"At the first level, the argument is that the [developer] and the third party contemplated that the person designated as the architect under the building contract would undertake that role from the inception, and would, from the beginning, hold the balance between the contractor and the [developer]. It is said that Mr Gordon Yeung, in granting the [extension of time], did not act in this capacity.

The second level of challenge is that the architect so appointed would balance those interests, and not act in collusion with the contractor and the [developer] to bring about a result that they both wanted. The plaintiff and defendant allege that Mr Yeung did not behave in this way.

The third level of challenge is that Mr Yeung, in considering the [extension of time], would act within his jurisdiction; that is, that he would consider an extension only if he was allowed to do so under the building contract. Mr Yeung, it is said, did not do this.

The fourth, and final, level of challenge is on the merits of Mr Yeung's decision. Here, it is argued by the plaintiff and the defendant, Mr Yeung's decision was wrong."

The judge upheld each of the four levels of challenge. Provided that just one of the levels of challenge is upheld on this appeal, the Defendant will have been entitled to rescind the second agreement, and the Plaintiff will have been entitled to rescind the third agreement.

9. It is fair to say, we think, that the first two levels of challenge were very far from the minds of the advisers of the Defendant and the Plaintiff when the trial began. These two levels of challenge arose as a result of the unexpected evidence of Mr Yeung himself. He came to court only because he had been summoned by the Plaintiff to produce various documents and to give evidence at the trial. The judge expressed surprise that a subpoena had had to be issued to secure his attendance at court. As the judge said:

"One might have thought that, as a professional man, he might have been willing, indeed anxious, to assist the court to resolve the disputes brought about by his grant of the [extension of time]."

It was because Mr Yeung gave evidence pursuant to a subpoena that a statement of the evidence which he would be giving had not been prepared. That was why the evidence which he gave about the role which he had performed came as such a surprise.

The first level of challenge

10. The judge's reasoning for upholding the first level of challenge was based on what the building contract contemplated the role of the architect appointed under it would be. Under the building contract, the architect had many important responsibilities to perform. They were to last for the lifetime of the project, and included the giving of instructions in relation to the construction of the building and approving variations to the building contract. It was the performance of those responsibilities which would enable the architect to carry out in an informed way the critical responsibility of deciding whether an extension of time for the completion of the construction of the building should be granted. That responsibility was conferred on the architect by cl. 23 of the building contract, which provided (so far as is material):

"Upon it becoming reasonably apparent that the progress of the Works is delayed, the ... Contractor shall forthwith give written notice of the cause of the delay to the Architect, and if in the opinion of the Architect the completion of the Works is likely to be or has been delayed beyond [30 June 1995] [for any of the reasons then set out], then the Architect shall so soon as he is able to estimate the length of the delay beyond the date or time aforesaid make in writing a fair and reasonable extension of time for completion of the Works ...."

The judge upheld the first level of challenge because, on the primary facts which he found, he did not think that Mr Yeung had been performing any of these duties. Accordingly, he could not be regarded as the architect envisaged by the building contract who was able to grant an extension of time under cl. 23, even though he had purported to do so.

11. So what were the primary facts which the judge found which led him to conclude that Mr Yeung had not been performing the duties of the architect appointed under the building contract? There were two of them. First, the judge found that Mr Yeung did not appreciate that he was the architect appointed under the building contract. That finding was based, inter alia, on Mr Yeung's evidence that "he was not, or was not until a late stage, appointed to perform this role, and then only for the limited purpose of granting the extension of time". That finding led the judge to make his second finding in these terms:

".... one cannot have an architect assuming one of the functions of the architect under the contract at a late stage when he has not exercised the duties and responsibilities during the contract that would enable him to exercise that function in a proper and professional manner. Mr Yeung makes it clear that he never anticipated being asked to consider an extension of time. How, then, could he have paid the required attention to the contractor's conduct during the course of the works to enable him to make a proper assessment of this matter? He did not, for example, require the contractor to submit reports to him as required by the contract. He did, he says, pay periodic visits to the site, but he did not have in mind the possibility that he would, eventually, have to make an assessment of the contractor's endeavours to avoid delay."

12. These findings justify the conclusion that Mr Yeung had not been performing the duties which the building contract contemplated would be performed by the architect appointed under the building contract. But we do not think that it follows from that conclusion that Mr Yeung had not been the architect envisaged by the building contract as the architect who was able to grant an extension of time under cl. 23. The plain fact is that he was the architect named in the building contract as the architect who was entitled to do so. The fact that he may not have known that until a later stage, or that he had never anticipated being asked to consider an extension of time under cl. 23, does not affect the position. Mr Yeung may not have been in a position to make an informed decision as to whether there should be an extension of time, but Art. 3 of the building contract expressly provided for the nomination of another architect if Mr Yeung ceased to be the architect appointed under the contract. If such a replacement was nominated at a late stage, he too would have found it difficult to make an informed decision as to whether there should be an extension of time.

13. For these reasons, we cannot go along with the judge's finding that "there was no architect as envisaged by the [building] contract who was able to grant an extension of time". The building contract envisaged Mr Yeung to be the architect able to grant such an extension by naming him as the architect appointed under the contract.

14. But that does not necessarily dispose of the first level of challenge. The first level of challenge focuses on what the developer and the third party envisaged, not on what the building contract envisaged. What the developer and the Third Party contemplated is to be gleaned from the terms of their agreement, i.e. the first agreement, and that is where the phrase "subject to the usual architect's extension" becomes of critical importance. Was the extension which Mr Yeung purported to grant under cl. 23 of the building contract an extension within the meaning of that phrase? That issue goes to the heart of all four levels of challenge. In its application to the first level of challenge, though, the question is whether an extension of time purportedly granted by Mr Yeung was "the usual architect's extension".

15. The meaning of the phrase "subject to the usual architect's extension" is a little elusive. In the course of argument, the view was expressed that the phrase might have meant "subject to such extension as may be granted pursuant to any usual provision in a building contract permitting an architect appointed under the building contract to extend the time for completing the works", i.e. that the word "usual" relates to the circumstances in which an architect would be contractually entitled to extend the time. However, we think that that is not what the parties to the first agreement intended, and on reflection we think that the phrase relates to the usual circumstances in which an architect would exercise his power to extend time.

16. What must not be overlooked is that the phrase appears in an agreement for the sale by a developer of land which was not yet developed, and that the part of the clause of the agreement in which it appears relates to the date by when the development had to be completed. The date by when the construction of the building was to be completed was of great importance to the purchaser. Nor should it be overlooked that the person who is empowered to determine whether the date for the completion of the construction should be extended is the person who has ongoing responsibilities throughout the lifetime of the building contract. The purchaser of the building would not have wanted the date for the completion of its construction to be capable of being deferred by the architect approved under the building contract unless the architect was one who had been monitoring the project throughout its lifetime, who was capable of making an informed assessment as to whether the contractor should have more time to complete the construction of the building, and who was therefore capable of holding the balance between the contractor and the developer in relation to such an extension of time. Thus, it is only if the architect approved under the building contract had performed his other duties under the building contract that it would be appropriate for him to exercise his additional power to extend time. Accordingly, the exercise of that power by an architect who had not performed his other duties under the building contract would have been unusual.

17. Unlike a replacement architect nominated under Art. 3 of the building contract at a late stage, Mr Yeung had been the architect approved under the contract throughout the lifetime of the project, even though he may not have appreciated that. On the primary facts which the judge found, and indeed on the bulk of Mr Yeung's own evidence, Mr Yeung had not performed the duties which had been assigned to him as the architect approved under the building contract. It could not be said, therefore, for it to have been appropriate for him to exercise his power under cl. 23 to extend the time for the completion of the construction of the building. Since his purported extension of time was not an extension of time of the kind contemplated by the first agreement, the developer was in breach of the first agreement in not causing the construction of the building to be completed or the occupation permit to be issued by 30 June 1995. That breach gave the Third Party the right to treat the first agreement as rescinded. Thus, the Defendant was entitled to rescind the second agreement, and the Plaintiff was entitled to rescind the third agreement.

The loss of the Defendant's right to rescind

18. Since the first level of challenge succeeds (even if not quite on the same basis as the judge found), we trust that we will be forgiven for not addressing the other levels of challenge. We therefore turn to the only other issue in the appeal, namely whether the judge was correct to conclude that the Defendant had not lost its right to rescind the second agreement by the time it purported to do so.

19. Cl. 23(b) of the second agreement required the Defendant to give written notice to the Third Party of its election to rescind the second agreement. As we have said, that notice was given by a letter from the Defendant's solicitors to the Third Party's solicitors dated 11 April 1996. The letter purported to rescind the second agreement "as a result of [the Third Party's] repudiation of the same". The letter referred to the "undue delay" in the issue of the occupation permit for the building. It also referred to the Third Party's "breach" relating to the exterior of the building. However, as we have already said, although the time which the construction of the building had to be completed by had been made a term of the first agreement, it had not been a term of the second agreement. Moreover, the judge had found that the alleged breach relating to the exterior of the building had not been established. Accordingly, neither of the grounds referred to in the letter of 11 April 1996 amounted to a breach by the Third Party of the second agreement. That was clearly recognised by the judge. He said:

"In my view, the defendant's right to rescind depends, not on any breach by the third party, but on clause 23 of the second agreement. The right to rescind arises by virtue of the agreement itself, and not because of any breach by the third party. It matters not, of course, that the defendant relied on a misconceived ground in rescinding. If the defendant had a right to rescind, it had a right to rescind, even if it may not have known the grounds for this at the time."

We entirely agree with that comment.

20. The Third Party's primary argument. The principal ground on which it was contended that the Defendant had lost its right to rescind the second agreement under cl. 23(b) was that

(a) the Third Party's right to rescind the first agreement arose immediately after 30 June 1995, because that was the day by when the occupation permit had to have been issued, and it had not been,

(b) the Defendant's right to rescind the second agreement under cl. 23(b) therefore arose immediately after 30 June 1995, and

(c) its failure to exercise that right for over nine months until 11 April 1996 amounted to an election to affirm the second agreement.

21. The law as to the circumstances in which a party is to be treated as having affirmed the contract was explained in Peyman v. Lanjani [1985] 1 Ch. 457. The relevant principles are conveniently summarised in Chitty on Contracts, Vol. 1, 28th ed., para. 25-002, suitably adapted to reflect the fact that the right to rescind in the present case arose from the second agreement itself rather than because of a breach of it by the Third Party. The text reads:

"[The party entitled to rescind the contract] will not be held to have elected to affirm the contract unless, first, he has knowledge of the facts giving rise to the [right to rescind the contract], and, secondly, he has knowledge of his legal right to choose between the alternatives open to him. Affirmation may be express or implied. It will be implied if, without knowledge of the [right to rescind the contract] and of his right to choose, he does some unequivocal act from which it may be inferred that he intends to go on with the contract regardless of the [right to rescind the contract] or from which it may be inferred that he will not exercise his right to treat the contract as [rescinded] .... Mere inactivity after [the right to rescind the contract arose] does not of itself amount to affirmation .... But if the innocent party unreservedly continues to press for performance or accepts performance by the other party after becoming aware of the [right to rescind the contract] and to his right to elect, he will be held to have affirmed the contract."

22. The fact which gave rise to the Defendant's right to rescind the second agreement was the Third Party's right to rescind the first agreement. But leaving aside the second, third and fourth levels of challenge which we have not found it necessary to address, the facts which gave rise to the Third Party's right to rescind the first agreement under the first level of challenge were the facts which showed that Mr Yeung's purported extension of the time for the completion of the construction of the building was not "the usual architect's extension". Those facts were that

(a) Mr Yeung had not been capable of making an informed assessment as to whether the contractor should have more time to complete the construction of the building, because up to the time when he purported to do so Mr Yeung had not been performing the duties which had been imposed by the building contract on the architect appointed under the contract,

(b) Mr Yeung had for that reason not been capable of holding the balance between the contractor and the developer in relation to such an extension of time.

On the findings of fact made by the judge, those facts were not known to the Defendant prior to 11 April 1996. Indeed, it looks as if they were not known to the Defendant until Mr Yeung's evidence at the trial. Accordingly, the Defendant did not know the particular facts which gave rise to its right to rescind the second agreement under the first level of challenge.

23. In his judgment, the judge said:

".... the contractor, the [developer] and Mr Yeung knew that the granting of this [extension of time] was a charade. They concealed this from the others."

These findings were challenged by Mr Chan. However, these findings were relevant to the second level of challenge. Even if there was no basis for those findings (which is not something which we are saying, because it is unnecessary for us to do so), the fact remains that, on the other findings of fact made by the judge which are not challenged, the Defendant was ignorant of the facts which gave rise to the Third Party's right to rescind the first agreement under the first level of challenge. We accept entirely that between 30 June 1995 and 11 April 1996 the Defendant had unequivocally acted as if the second agreement was still in force. For example, the Defendant did not protest when its solicitors were informed on 3 August 1995 and 24 October 1995 that part of the deposit paid by the Defendant to the Third Party under the second agreement was going to be released by the Third Party to the developer under the first agreement. But at that time the Defendant did not know of the facts which gave rise to the Third Party's right to terminate the first agreement under the first level of challenge.

24. We have not overlooked the fact that, as early as 17 October 1995, the Plaintiff's solicitors had written to the Defendant's solicitors expressing concern about the extension of time granted by Mr Yeung. That concern was repeated in a subsequent letter dated 10 November 1995. But that concern was not about whether an extension of time purportedly granted by Mr Yeung was "the usual architect's extension" (i.e. the first level of challenge), but whether an extension of time should have been granted on the grounds on which Mr Yeung purported to do so (i.e. the fourth level of challenge). These letters, therefore, could not have alerted the Defendant to the facts which gave rise to the Third Party's right to rescind the agreement under the first level of challenge.

25. The Third Party's subsidiary argument. The secondary ground on which it was contended that the Defendant had lost its right to rescind the second agreement under cl. 23(b) was that

(a) the Defendant would lose its right to rescind the second agreement if the Third Party lost its right to rescind the first agreement, and

(b) the Third Party had in fact lost its right to rescind the first agreement by 11 April 1996.

There is a short answer to this point. The Third Party applied for, but was refused, leave to amend its Defence further to enable this point to be taken, and it no longer pursues its appeal from that refusal. On the pleadings, therefore, this was not a point which it was open to the Third Party to take.

26. However, even if the Third Party was able to get over the pleading point, its argument would have had to be rejected. It may be that step (b) of the argument is correct. Thus, it may be that the Third Party had in fact lost its right to rescind the first agreement by 11 April 1996 for the reason advanced by Mr Chan. That was that the Third Party's failure to exercise its right to treat the first agreement as repudiated after 30 June 1995 meant that the time for the completion of the construction of the building and the issue of the occupation permit ceased to be of the essence. It could only be made of the essence again by a notice requiring the developer to cause the construction of the building to be completed and the occupation permit to be issued within a reasonable time. Since such a notice had not been given, the Third Party's right to rescind the first agreement, which had been lost some time after 30 June 1995, had never been regained.

27. But it is at step (a) that the Third Party's subsidiary argument, in our view, breaks down. If the Defendant was to lose its right to rescind the second agreement in the event of the Third Party losing its right to rescind the first agreement, there had to have been a term to that effect in the second agreement. There was no express term to that effect. The only circumstance in which the second agreement expressly provided for the Defendant to lose its right to rescind the second agreement was if the Defendant had directed the Third Party to refrain from exercising any right of rescission under the first agreement, such direction had remained unrevoked, and the Third Party had not acted contrary to such a direction: see cl. 23(d). Nor is there any basis upon which it would be right to imply a term to that effect. It cannot be said that the presumed intention of the parties must have been for the Defendant's right to rescind the second agreement in the event of the Third Party being entitled to rescind the first agreement to be dependent upon either (a) the exercise by the Third Party of its right to rescind the first agreement or (b) the continuing existence of such a right.

28. The construction of cl. 23(f). Cl. 23(f) of the second agreement provides:

"If the [developer] fails to complete the Building and the Fittings and Finishes to be erected on the said Premises within the specified period provided in the [first agreement] and the [Third Party] elects to wait for completion, the [Third Party] shall on completion account and pay to the [Defendant] all interest (if any) payable by the [developer] to the [Third Party] under the [first agreement] due to delay in completing the building."

The Third Party's argument is that this clause overrides cl. 23(b). Thus, if the developer failed to complete the construction of the building by 30 June 1995, but if the Third Party elected not to rescind the first agreement on that account, the effect of cl. 23(f) was to limit the Defendant's rights simply to the receipt of such interest as may have been payable by the developer to the Third Party to compensate the Third Party for the delay in the completion of the construction of the building. Accordingly, the Defendant was not in those circumstances entitled to exercise its right to rescind the second agreement under cl. 23(b).

29. We have set out the first sentence of cl. 23(b) earlier in this judgment, but for present purposes it is necessary to state how it continues:

"In addition, the [Defendant] shall be entitled within seven (7) days after the receipt of such notification by the [Third Party] to direct the [Third Party] in writing to refrain [from] exercising such right and the [Third Party] shall not .... exercise any right of rescission under the [first] agreement unless the direction is revoked by the [Defendant] or unless the [Defendant] shall fail to give any direction to the [Third Party] within seven (7) days of receipt of the [Third Party's] notice under this sub-clause, in which event, the [Third Party] shall be entitled to exercise or to refrain from exercising such right of rescission as the [Third Party] may think fit."

30. Subject to one comment, we agree entirely with the judge's reasoning for rejecting the Third Party's argument on cl. 23(f):

"Clause 23(b) gives the defendant a specific right to rescind 'notwithstanding any provisions herein contained to the contrary'. Even Clause 23(f) itself does not purport to be to the contrary; it does not say that, in the circumstances prescribed, the defendant would lose its right to rescind. I believe that clause 23(f) applies only where the third party elects to wait, notice has been given under sub-clause (b) and the defendant has given no direction. It would make nonsense of the detailed provisions giving the defendant the right to rescind if it were so that the third party could nullify those rights by deciding that it wants to complete, regardless of the defendant's wishes in the matter, and no matter how much delayed was the completion."

The only comment we wish to make relates to the words "notwithstanding any provisions herein contained to the contrary". Those words have no bearing on the construction of cl. 23(f) if the word "herein" relates to cl. 23(b) only and not to cl. 23 as a whole. It is, we think, sufficient to state that if cl. 23(f) was intended to remove the Defendant's right to rescind the second agreement if the Third Party chose not to treat any delay on the part of the developer as a ground for repudiating the first agreement, it would have said so in express terms. That it signally failed to do.

31. For all these reasons, therefore, we are satisfied that Findlay J was right to conclude that the Defendant had not lost its right to rescind the second agreement.

Conclusion

32. It follows that both the Third Party's appeal and the Defendant's appeal must be dismissed. At present, we see no reason why costs should not follow the event, and the orders nisi which we would make are that (a) the Third Party should pay to the Defendant the Defendant's costs of the Third Party's appeal to be taxed if not agreed, and that (b) the Defendant should pay to the Plaintiff the Plaintiff's costs of the Defendant's appeal to be taxed if not agreed. However, since the Defendant's appeal was only pursued in case the Third Party's appeal succeeded, and since it was reasonable for the Defendant to file its appeal on that basis in the particular circumstances of the case, we would also make an order nisi requiring the Third Party to indemnify the Defendant in the amounts of both the Defendant's and the Plaintiff's costs of the Defendant's appeal.

Representation:

Mr John Scott SC and Mr David Tsang, instructed by Messrs Robert C.C. Ip & Co., for the Plaintiff.

Mr Ronny Wong SC and Mr Kent Yee, instructed by Messrs Siao, Wen & Leung, for the Defendant.

Mr Edward Chan SC and Mr Nelson Miu, instructed by Messrs Victor Ng & Co., for the Third Party.