Lee Sai Kwong and Another v. Wong Wing Fai and Another

HCA003710/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3710 of 1997

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Coram: The Hon Mr Justice Barnett in Court

Date of hearing: 21 and 22 September 1998

Date of delivery of ruling: 22 September 1998

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R U L I N G

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1. This is an action for specific performance combined with a claim for damages as an alternative in respect of the sale and purchase of a flat in Hong Kong. A provisional sale and purchase agreement was signed on 24 February 1997. The Plaintiffs were the intending purchasers; the Defendants were the vendors. That provisional agreement was expressed to be binding and it provided for completion on 10 April 1997. It also provided for the signing of a formal sale and purchase agreement on 10 March. The Defendants refused to sign. On 4 April, as I see from the documents and the pleadings, the Plaintiffs' solicitors demanded completion on 10 April in accordance with the provisional agreement. There was no response.

2. Promptly, on 10 April last year, the Plaintiffs issued the writ and commenced this action for specific performance or damages. On 22 August this year, that is exactly one month ago today, the Defendants, through their solicitors, indicated that they were prepared to submit to judgment for specific performance of the provisional agreement. Having regard to what has happened in the property market in Hong Kong in the last 18 months, that indication was hardly surprising. The trial then came on before me yesterday in the running list, and the issue which arises and which I have to resolve is whether the Plaintiffs are still entitled to elect between their claim for specific performance and their claim for damages, having regard to the fact that the Defendants have indicated they are willing to perform the agreement.

3. The principles in relation to election are set out in the work of Jones & Goodhart on Specific Performance at page 287, and also in Volume 44 of the Fourth Edition of Halsbury's Laws of England at paragraph 561, and it is perhaps the latter that I should read, and I quote:

"Election between remedies. A plaintiff claiming specific performance or damages ...(reads) to specific performance and his claim to damages."

I end the quotation. The important words there, of course, are that the right of election will cease upon certain matters, and a footnote there refers to two cases, one of which is the case of Frost v Knight (1872) LR 7 Ex Ch 111. More of that authority later.

4. For the Defendants, Mr MOK emphasised - relying upon that passage which I have just mentioned in Halsbury - Mr MOK emphasised the loss of election on the part of the innocent party if, before an election has been made, the wrongdoer - usually the defendant in proceedings - seeks to perform. In support of that, he relied principally upon two cases. First, the decision of the House of Lords in Johnson v Agnew [1980] AC 367.

5. In that case, the defendant purchaser failed to comply with an order for specific performance. The question that arose was whether the plaintiff/vendor, having declared that the contract was terminated after that order for specific performance which the purchaser failed to comply with, could recover damages. The issue, then, was the recovery of damages, and amongst other things, the House of Lords was concerned to distinguish between rescission ab initio and termination of a contract under which accrued rights and obligations continued to subsist. And it was in this context that at page 397, Lord Wilberforce who delivered the principal judgment, with which the other members of the court agreed, said, and I quote:

"... in a case very similar to the present, McKenna v Richey [1950] VLR 360 ...(reads) damages in the alternative arises from the fact that in order to avoid circuitry ..."

That must be a mistake, I think, for "circuity":

"... of action, there is vested in the one court jurisdiction to grant ...(reads) with all the possible consequences of that fact."

I end the quotation. Mr MOK, very understandably, relied upon the last sentence in that quotation to the effect that the contract remains in force with all possible consequences which, he said, would include the ability on the part of the wrongdoer or defendant to perform the contract.

6. The other case, the principal case relied on by Mr MOK, was another decision of the House of Lords, Fercometal SARL v Mediterranean Shipping Co [1988] 2 All ER 742. That case concerned the anticipatory breach of a charterparty. At page 747, Lord Ackner, who again delivered the principal judgment of the court, with which the other members agreed, referred to the decision in Frost v Knight. He said, and I quote under the sub-heading "The innocent party's option":

"When one party wrongly refuses to perform obligations, this will not automatically ...(reads) his intention not to perform it, as established by the cases ..."

and there is a list of cases:

"... may be thus stated. The promisee, if he pleases, may treat the notice of intention ...(reads) which would justify him in declining to complete it."

I end the quotation there. Once again, of course, Mr MOK laid emphasis upon keeping the contract alive for the benefit of the other party as well as the innocent parties. However, I would emphasise at this stage the words "await the time when the contract is to be executed" and that the contract is to be performed at a future time.

7. And then later, in his judgment, Lord Ackner said at page 748, and I quote:

"... the law as stated in Frost v Knight and Johnson v Milling has been reasserted ...(reads) which excuses or puts an end to further performance."

I end the quotation. And, once again, Mr MOK understandably laid emphasis on the words of the final sentence. For the time being, I draw attention to the words early in the quotation, that one party acts so "as to show that he does not mean to accept and discharge the obligations".

8. For the Plaintiffs, Miss CHAN relies upon a Canadian authority, Beauchamp v Costal Corp 26 DLR 146, a decision of the Federal Court of Appeal. This case is apparently inconsistent with the two decisions of the House of Lords to which I have just referred. In the Canadian case, MacGuigan J, who delivered the judgment of the court, dealt with the decision of Frost v Knight at page 150. First, he set out the passage from Halsbury which I have already read out, and then he said and I quote:

"The case relied on by Halsbury for the effect of remedying a breach of contract ...(reads) for a case of actual breach of contract as here."

I end the quotation. So, a distinction is there made between an anticipatory breach of contract where the wrongdoer is afforded the opportunity to rethink and perform the contract at the time appointed and a position where the contract has already been broken by the wrongdoer.

9. The Canadian court then went on to reject the notion that a claim for specific performance in fact amounts to election. Then at page 152, MacGuigan J continued:

"Further, the effect of bringing an action for specific performance is not, ...(reads) what adjustments are to be made for losses resulting from the breach."

I end the quotation there. The judge then went on to deal with another case, Public Trustee v Pearlberg, and then referred to the speech of Lord Wilberforce in Johnson v Agnew, and the judge quoted from Lord Wilberforce at page 894 of the report in the All England Law Reports. I quote:

"A vendor who seeks (and gets) specific performance is merely electing for a course ...(reads) (see the judgment of Greene MR in Austins of East Ham Ltd v Macey)."

That was the extract from Johnson v Agnew to which MacGuigan J referred. I would draw attention to the words "control of the court". MacGuigan J then went on and I quote:

"It seems to me to follow that until the innocent party makes an unequivocal election against specific performance the effect of his having claimed it and of having asserted his readiness, willingness and ability to perform the contract cannot be, as the appellants contend, to retain the contract as in effect for all purposes and enforceable at the instance of either party. That would deprive the innocent party of his election, which he alone has as the result of the other party's original default. As the election to forego specific performance in favour of damages can be made at any time during the litigation, it existed and was exercisable at the moment when the appellants made their tender of performance, if indeed the respondent's equitable right to specific performance had not already been irrevocably foregone by what had occurred earlier when the letters of January 5, 1984 and February 2, 1984 (pp 143 and 145 of the case), were written. Persisting in keeping the claim for specific performance in the statement of claim is itself of little significance. It asks for the relief but the claim can be withdrawn at any moment. If a tender of performance by the party in default could cure his breach he would have, simply because of a claim for specific performance, after breaking the contract, as much right to enforce it as the innocent party has. Even if, with McRuer C.J.H.C. in the Dobson case, the innocent party were allowed "his costs and any damages sustained by the delay in carrying out the contract" he would still be allowed only the specific performance option and not the right to withdraw the claim and take his alternative common law remedy of damages.

This would not be equity, because it would not be fair, in relation to a contract of which time was of the essence, to abrogate the distinction between the wronged and the wronging party. The election of remedies must remain at the option of the innocent party, and to that extent, the contract will be alive in an unequal way, or, more accurately, it will remain alive but will be enforceable, if at all, only by the originally non-defaulting party on such terms as to compensation as a court of equity may prescribe."

10. It is clear that the Canadian court was squarely addressing the issue which is before me. I believe it is proper for a distinction to be drawn on the one hand between a person in anticipatory breach or who has been ordered to perform his contract so that contract is still kept alive, and on the other hand a person who has broken his contract as in the present case. The former wrongdoer has room to review his position or, indeed, under the control and direction of the court, an obligation to perform. The latter has lost that opportunity unless the court determines that the contract should be continued under the control of the court.

11. In my judgment, a party already in breach of his contract, a contract which is capable of being specifically performed, cannot avoid the innocent party's right to elect for the reasons, in my view powerfully, set out in the Canadian decision. At best, that person can precipitate the innocent party's election because it seems to me right that, having given an indication of his position, he should know without further delay the case which he will be required to meet by the innocent party, the plaintiff.

12. In my view, therefore, the Plaintiffs in this case have not lost their right to elect by the indication on the part of the Defendants that they are prepared to submit to an order for specific performance. That being so, I think it right that the Plaintiffs are now put to their election, and I will hear what it is, although I have a degree of confidence that it is not specific performance.

Representation:

Miss Winnie CHAN (Yolanda Fan & Co) for Plaintiffs

Mr Keith MOK (Ng, Tam, Ko & Chan) for Defendants