Wong Kwai on and Others v. Leung Wing Cheong

HCA6381/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6381 OF 1997

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Coram : Deputy Judge Lugar-Mawson in Court

Dates of hearing : 9, 10 and 11 November 1998

Date of delivery of judgment : 2 December 1998

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J U D G M E N T

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1. This action arises from the aborted agreement for the sale and purchase of Flat E, 32nd Floor, Block 15, Richland Gardens, 80 Wang Kwong Road, Kowloon ("the property").

2. On 24 May 1997, at an estate agent's office, the parties entered into a written agreement headed "provisional agreement for sale and purchase" by which the defendant vendor agreed to sell and the plaintiff purchasers agreed to purchase the property at the price of $2,780,000. The provisional agreement which I shall refer to as "the estate agent's contract" was on a printed form published by the Society of Hong Kong Real Estate Agents Ltd. Its terms were in both Chinese and English.

3. Clause 2 of the estate agent's contract provided for the purchase price and the manner in which it was to be paid. Under Clause 2(a), an initial deposit of $150,000 was to be paid upon the signing of the contract. Under Clause 2(b), a further deposit of $128,000 was to be paid upon signing of what was referred to as "the formal agreement for sale and purchase" on or before 30 May 1997. Clause 2(c) was crossed out. Clause 2(d) provided that the balance of the purchase price was to be paid upon completion on or before 16 June 1997.

4. The defendant vendor was selling as confirmor. He had entered into an agreement with a third party to purchase the property on 7 March 1997, this also provided for a completion date of 16 June 1997.

5. Clauses 7 and 8 of the estate agent's contract provided for penalties should the parties fail to perform the contract. Clause 7 provided :

"Should the purchaser fail to complete the purchase in the manner herein contained, the deposit shall be forfeited to the vendor and the vendor shall then be entitled at his absolute discretion to sell the said premises to anyone he thinks fit and the vendor shall not sue the purchaser for any liabilities and/or damages or to enforce specific performance."

Clause 8 provided :

"Should the vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the vendor shall immediately compensate the purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the purchaser shall not take any further action to claim for damages or to enforce specific performance."

6. The property was a former Housing Department property and on its sale the third party was under an obligation created by s.17AA and the Schedule to the Housing Ordinance to pay a premium to the Director of Housing. A handwritten condition in Chinese in the estate agent's contract - condition 19 - provided for this, it reads in English translation :

"As a conditional of this agreement, the premium assessed by the Director of the Housing Authority shall be paid within 28 days of the date of the agreement for completion, or be paid within any period as stipulated by the Director of the Housing Authority."

7. In English the clause makes little sense, the phrase "within 28 days of the agreement for completion" could mean within 28 days of completion, or it could mean within 28 days of the estate agent's contract itself.

8. After signing the estate agent's contract, the parties instructed Solicitors. The plaintiff purchasers instructed Messrs Daniel Wong & Partners, and the defendant vendor instructed Messrs S. H. Leung & Co.

9. The history of the transaction is this :

10. On 28 May 1997, S.H. Leung & Co. sent Daniel Wong & Partners a draft agreement for subsale and purchase in duplicate, together with an epitome of title.

11. On 30 May 1997, Daniel Wong & Partners sent S.H. Leung & Co., their client's account cheque for $128,000 in payment of the balance of the deposit.

12. On 31 May 1997, Daniel Wong & Partners sent S.H. Leung & Co. pages 3, 12, 13, 13a and 17a of the draft agreement containing their suggested amendments to various clauses on those pages. In the same letter they asked S.H. Leung & Co. to approve those amendments and to provide them with the engrossed agreement for sale and purchase for their client's signature. One of the suggested amendments to the agreement was to Clause 32(a) that dealt with the payment of the Housing Authority premium. The original wording of the final sentence of that clause as drafted by S.H. Leung & Co. was as follows :

"The parties hereby agree that such payment of the premium as shown in the letter of assessment and/or relevant demand notes to such payment should be deducted from the balance of purchase price and be paid by the Head vendor's Solicitor on their behalf on completion. The purchaser shall pay the premium to the vendor's Solicitors before 11:00 a.m. on the completion date."

Daniel Wong & Partners requested that that be reworded as follows :

"The parties hereby agree that such payment of the premium as shown in the letter of assessment and/or a relevant demand notes to such payment should be paid by the Head vendor's Solicitors on their behalf at least two working days prior to the date of completion. The purchaser should pay the balance of purchase price to the vendor's Solicitors before 11:00 a.m. on the completion date."

Following S.H. Leung & Co.'s receipt of that letter and suggested amendments, there appears to have been telephone conversations between the Solicitors regarding the wording of that and other clause.

13. On 5 June 1997, S.H Leung & Co. sent Daniel Wong & Partners a letter which contained the following passages :

"We also refer you to the draft formal agreement for sub-sale and purchase ... Your client have not signed the formal agreement. Under the provisional agreement ... your client is obliged to have the formal agreement signed on 30th March 1997, and failure to sign the formal agreement on 30th March 1997 is a breach of the provisional agreement which entitles our client to forfeit the deposit. Unless we receive the formal agreement in duplicate as signed by your client by 5:00 p.m. on 5th June 1997, our client shall exercise their rights under the provisional agreement ...

As for the outstanding disagreement as to the draft agreement for sub-sale and purchase ... as to clause 32(a), your client is not entitled to request a payment of the demand note for premium 2 days prior to completion as under the Principal agreement between our client and the Head vendor, our client never has that right.

...

We send to you re-engrossed draft agreement for sub-sale and purchase for your immediate action. (sic)"

From the heading, it would appear that that letter was sent by fax at 9:15 a.m. in the morning of 5 June. In the engrossed sale and purchase agreement enclosed with that letter, the final sentence of Clause 32(a) reads :

"The parties hereby agree that such payment of the premium as shown in the letter of assessment and/or relevant demand notes to such payment should be paid by the Head vendor's Solicitors on their behalf on or before the date of completion. The purchaser shall pay the balance of purchase price to the vendor's Solicitors before 11:00 a.m. on the completion date."

14. On 6 June 1997, Daniel Wong & Partners wrote to S.H. Leung & Co. enclosing the agreement for sale and purchase duly signed by the plaintiff purchasers.

15. On 7 June 1997, S.H. Leung & Co. wrote to Daniel Wong and Partners enclosing a memorial of the agreement. In the first paragraph of the letter they said this :

"Without waiving your client's breach of the provisional agreement and without agreeing or representing that our client would waive the breach or sign the formal sale and purchase agreement and without admitting that our client is obliged to send you the documents as requested in your letter of 5th June 1997 or that your client is entitled thereto, we like to state as follows..."

What follows is not relevant in this case.

16. On 11 June 1997, S.H. Leung & Co. sent Daniel Wong & Partners another letter containing the following passages :

"The agreement provides inter alia that the formal agreement for sale and purchase should be signed on or before 30th May 1997.

Your clients have failed to signed the formal agreement on 30th May 1997. Your clients have therefore breached the agreement and or repudiated the agreement. By a notice in writing dated 5th June 1997 issued in that morning by our firm on behalf of our client to your firm on behalf of your client, we have notified you that unless we receive the formal agreement for sub-sale and purchase by 5:00 p.m. on 5th June 1997 as signed by your clients, our client should exercise his rights under the agreement and your clients have failed to deliver the signed formal agreement to us by 5:00 p.m. on 5th June 1997. Our client has no intention to waive the said breach. We made it clear that inter alia our client has no intention to waive your client's breach of the agreement and that our client's rights under the agreement is reserved in our letter of 7th June 1997 to you. The personal undertaking you imposed on us under cover of your letter of 6th June 1997 namely to return the agreement for sale and purchase as signed by our client within the next 3 working days from 6th June 1997 cannot be fulfilled. We return to you your firm's cheque in favour of our firm for HK$128,000.00. We also return to you the draft formal agreement in duplicate as unilaterally signed by your client. The initial deposit paid under the agreement for HK$150,000.00 is forfeited to our client (sic)."

17. Daniel Wong & Partners replied to that letter on the same day, protesting at the action taken by S.H. Leung & Co. and the defendant vendor, and maintaining that their client was not in breach of the terms of the estate agent's contract. They returned the deposit cheque and the agreement for sale and purchase signed by their clients to S.H. Leung & Co. They told them that if the defendant vendor refused to sign and return the agreement by 5:00 p.m. on the following day, then they had instructions to issue a writ for specific performance. They also told S.H. Leung & Co. that they had instructions to register the estate agent's contract in the Land Registry in order to protect their client's interests.

18. On 13 June, Daniel Wong & Partners again wrote to S.H. Leung & Co., enclosing a draft of the assignment of the property. On the same day, S.H. Leung & Co. replied to that letter in the following terms :

"We are instructed to return to you the formal agreement for sub-sale and purchase in duplicate as signed by your clients together with your cheque for HK$128,000.00 sent under cover of your said letter dated 11th June 1997.

Your clients have in all circumstances breached the provisional agreement.

Notwithstanding our delivery to you of the draft formal agreement on 28th May 1997, you have failed to communicate any disagreements or amendments to the draft until shortly before noon on 31st May 1997 when we received your fax. We immediately fax our re-amendments to you. You then said on 2nd June 1997 that you would write to us as to the disagreements about the draft formal agreement. We waited and waited but no reply came. We then wrote to you on 5th June 1997 about the disagreed terms on the draft formal agreement and identified the disagreed terms to the effect that some terms you insisted are extraneous. In the morning of 5th June 1997, we therefore delivered the re-engrossed draft formal agreement in duplicate for your clients' execution under cover of that letter of 5th June 1997 and stated that unless your clients should sign and deliver the formal agreement to us by 5:00 p.m. on 5th June 1997, our client shall enforce their rights under the provisional agreement. Your clients have failed to do so.

As your clients have so repudiated the provisional agreement and breached the provisional agreement, our client is not obliged to waive the breach. We stated our client's intention not to waive the breach in our letter of 7th June 1997 to you.

Our client is perfectly entitled not to waive your clients' breach so we returned the draft formal agreement within the 3 working days from 6th June 1997, as stipulated by your letter of 6th June 1997 to us.

We are of the view that no party under the provisional agreement is entitled to claim specific performance under the provisional agreement. (sic)"

The letter went on to demand the cancellation of the registration in the Land Registry and to inform Daniel Wong & Partners that S.H. Leung & Co. had instructions to accept service of any proceedings.

19. From the correspondence, it is clear that by 11 June 1997 at the latest, S.H. Leung & Co. had formed the view that the plaintiff purchasers were in breach of the estate agent's contract in that they had not exchanged a formal agreement for sale and purchase by 30th May 1997, as extended by their letter of 5 June 1997 to 5:00 p.m. on that date. And that by failing to do so, the plaintiff purchasers had evinced an intention to rescind the estate agent's contract, entitling the defendant vendor to regard the entire agreement as repudiated and permitting him to forfeit the initial deposit of $150,000.

20. It is also clear from that correspondence that S.H. Leung & Co. had made it impossible for the transaction to be completed unless they and their client changed their stance because they had failed to exchange formal agreements and had returned the assignment to Daniel Wong & Partners unexecuted by the vendor defendant.

21. Not surprisingly, completion did not take place on 16 June 1997 as provided for in the estate agent's contract. On 17 June 1997 Daniel Wong & Partners' staff attended S.H. Leung & Co.'s offices in an attempt to effect completion, their advances were rebuffed.

22. The agreed documentation in evidence before me shows that the premium was paid to the Housing Authority on 13 June 1997.

23. That then is the unhappy history of the case. The facts are not in dispute and I turn now to the issues.

24. In their amended statement of claim, as further amended with my leave at trial, the plaintiff purchasers claim the return of the initial deposit of $150,000 and the liquidated damages of an equal amount provided for in Clause 8 of the estate agent's contract, together with interest and costs. They have abandoned their claim for a decree of specific performance of the contract.

25. The defendant vendor's defence to the action is that the plaintiff purchasers breached the estate agent's contract by a "continued insistence" that the Head vendor must pay the premium to the Housing Authority at least two working days before the completion date given in the estate agent's contract. The defendant says that this insistence went entirely beyond what had been agreed in that contract. The payment of the premium was an extraneous term and a continued insistence upon the requirement that it be paid at least two working days before completion amounted to a repudiation of the estate agent's contract. The defendant asks for an order cancelling the registration of the contract in the Land Registry and a declaration that the plaintiff purchasers have no interest in that property, and he asks for costs.

26. His counsel, Mr Chris Cheng, accepted at trial that, if I am with him, the defendant vendor has already received liquidated damages for breach of agreement by virtue of the forfeiture of the initial deposit of $150,000 allegedly under the terms of the estate agent's contract.

27. In argument at trial Mr Cheng argued that the plaintiffs' failure to exchange contracts on 30 May 1997 itself amounted to a repudiation of the estate agent's contract. And if he had waived his right to insist on exchange on 30 May 1997, the failure to do so by 5:00 p.m. on 5 June 1997, as required by the notice, amounted to a repudiation by the plaintiffs on 5 June 1997 once the time limit of 5:00 p.m. had passed. Mr Cheng argued that this repudiation, be it on 30 May or on 5 June 1997 by 5:00 p.m., entitled the defendant to forfeit the deposit of $150,000 under Clause 7 of that contract as the plaintiffs had failed to complete the purchase in the manner provided for in it.

28. The defendant maintained in evidence that had the plaintiffs and their Solicitors attended S.H. Leung & Co.'s offices on 16 June 1997, offering to effect completion, he would have proceeded with the sale of the property to them. That claim appears spurious. On the evidence he had obviously, by 11 June 1997, accepted his Solicitors' advice that the plaintiff purchasers were in breach of the terms of the estate agent's contract and that he was entitled, by reason of that, to regard the agreement as ended and to forfeit the initial deposit. Indeed it is hard to see how completion could have been effected on 16 June 1997, or on any subsequent date, given that S.H. Leung & Co. had returned the assignment to Daniel Wong & Partners unexecuted by the defendant.

29. Apart from the reference in Clause 2(b) to a "formal agreement for sale and purchase", the estate agent's contract made no further reference to a formal agreement or what its terms were to be, though clearly the parties envisaged that one would be drawn up by their Solicitors. From the cases cited to me at trial it would appear that the conveyancing regime in Hong Kong is bedeviled by problems caused by estate agents' so called "preliminary agreements". These were rightly referred to as "half-baked" by Godfrey JA in Keung Shiu Tang v. D H Shuttlecocks Ltd. [1994] 1 HKC 286.

30. Their status, effect and what can be contained in them were described by Mr Robert Ribero QC, sitting as Deputy Judge of the High Court in Chu Wing Ning v. Ngan Hing Cheung & Anor Action No.A9409/1991 (unreported) at pages 7-9 of the transcript, as follows :

"If the parties so intend, it is generally open to them to enter into an initial agreement which has immediate contractual effect while at the same time agreeing that they will formalise that agreement in a written contract subsequently to be drawn up ...

What are the terms to be inserted in the formal sale and purchase agreement envisaged by the provisional agreement? Obviously, no difficulties arise where the parties agree on the terms of the sale and purchase agreement prepared by their solicitors, whether or not the final product is consistent with the provisional agreement. But what if certain terms proposed for the sale and purchase agreement cannot be agreed?

Assuming that the underlying provisional agreement is a binding legal agreement in its own right, the governing principle must be that each party is entitled to have inserted in the formal agreement all the terms which the provisional agreement expressly or by necessary implication contains - but no others (unless by mutual consent). Thus, in Rossiter v. Miller (1878) 3 App Cas 1124, dealing with a case where an outline agreement was to be formalised in an agreement to be prepared by solicitors, Lord Hatherley stated : -

'Both parties may desire that it shall be put into a formal shape by a solicitor who, in that case, will not be able to vary the agreement either on one side or the other, but only to put into a more formal and professional shape the agreement which had been completely formed with unity of purpose with reference to the sale and purchase by the two parties to the contract.' (at p.1143-1144)

Lord Blackburn was of a similar view, as was Lord Gordon who stated at page 1154 : -

'I think that the correspondence founded on, constituted a completed contract for the purchase and sale of the lots in question. No doubt these conditions provided for a subsequent and formal deed being executed by the parties; but that deed was only for the purpose of more formally setting forth the conditions upon which the parties had agreed. If there was anything introduced into the proposed deed, which the purchaser considered beyond the terms and conditions on which he had purchased the property, he would have been entitled to object, and, if necessary, the proper terms of the deed could have been adjusted at the sight of a Court of Law. But in my view the contract between the parties was concluded by the correspondence and the conditions which were referred to and embodied in it.'

Similarly, in Branca v. Cobarro [1947] KB 854 (CA), Lord Green MR, described a 'provisional agreement' as 'an agreement which is only to last until it is replaced by a formal document containing the same terms and drawn up by a solicitor'. (at p.858)

Where a party presses for a term which does not properly reproduce or reflect a provision agreed as part of the provisional agreement, but where the other party rejects inclusion of that term, then it is clear that the original party is able to fall back upon the provisional agreement and enforce it as an open contract. Link Brain v. Fujian Finance Co Ltd [1990] HKLR 353 (CA). The intended subsequent agreement was to make formal and express what had been informal and perhaps only implied. Failure to achieve the desired formality does affect the contractual rights and obligations already in place by virtue of the underlying provisional agreement.

Thus, in Link Brain, it was held inter alia that, by virtue of an express term in the provisional agreement (Clause 7) and s.13 of the Conveyancing and Property Ordinance, there was an express or implied obligation on the vendor to require proof of title with its root in a 1962 assignment. The draft sale and purchase agreement however would effectively have limited proof of title to an assignment in 1982. This was rejected by the purchaser and the terms of the sale and purchase agreement were never agreed. The Court of Appeal held that since the purchaser was entitled to require a 1962 root of title, failure to agree on the formal sale and purchase agreement in this regard did not affect the parties' continuing rights and obligations under the existing provisional agreement. The purchaser was able to enforce that provisional agreement as an open contract.

The position is obviously different where the parties fail to agree the contents of the formal sale and purchase agreement because one of them is insisting on terms being inserted which go entirely beyond what had been expressly or impliedly agreed in the provisional agreement. In such a case, continued insistence on such extraneous terms may constitute a repudiation of the provisional agreement which the other party may accept, bringing the contract to an end. The party insisting on the new term cannot, on such a failure to reach agreement, merely fall back onto the provisional agreement and seeks its specific performance. The repudiation having been accepted, nothing remains to be enforced."

31. Nowhere in the estate agent's contract is the time for exchange of the formal contract, payment of the balance of deposit by the defendant, or completion made of the essence. It is always open for the parties to any contract to stipulate that the time for performance of any obligation in it, whether it be by vendor or purchaser is essential. If this is done, the Courts will accept that this was their intention and will not look to see what their reasons for doing so were, or whether they served any logical or commercial purpose.

32. The effect in declaring time to be of the essence is to raise the term to the status of a condition. With the consequences that a failure to perform the given act by the stipulated time will entitle the innocent party to terminate performance of the contract and thereby put an end to all primary obligations of both parties remaining unperformed. The innocent party can also claim damages from the contract breaker on the basis that he has committed a fundamental breach of the contract, depriving the innocent party of the benefit of the contract.

33. Mr Cheng argued that in Hong Kong stipulations as to time are always of the essence in contracts for the sale of land even though that is not expressly provided for in the agreement. For authority to that proposition, he relied on the judgment of Godfrey JA in Ann Wong Lai Chi & Anor v. Wilson Cheung Kwok Hung & Ors [1996] 3 HKC 287 where he said :

"In these provisional agreements for sale and purchase in today's secondary market in Hong Kong, everybody does, usually, proceed on the footing that time is to be of the essence and that a purchaser who refuses or fails to sign the agreement, if it is available for signature on the specified date, and there is no blame to be attributed to the vendor, will be held to be in repudiatory breach of the agreement. This has not always been appreciated by judges of first instance. And there is a decision of this court which may have overlooked the point see Yiu You Ping v. Fong Yee Lan [1992] 2 HKLR 167. Of course, each case must depend on its own facts. But in the absence of special circumstances it will usually be the case that a provisional agreement for sale and purchase in the common form in use in Hong Kong will be treated as one of which time is of the essence, although no express provision in that behalf is contained in the agreement."

34. With respect to the Court of Appeal, it would appear that in that case their attention was not drawn to s.11 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23, which provides that :

"Stipulations in contracts as to time or otherwise which would not before 30th October 1873 have been deemed to be of the essence of such contracts in the court in its equitable jurisdiction shall receive in the court the same construction and effect as they would formally have received in equity."

Section 23 of the Law Amendment Reform (Consolidation) Ordinance is taken from s.25(7) of the Supreme Court of Judicature Act 1873 which is now found in English law, in a slightly amended form, in s.41 of the Law of Property Act 1925, which provides :

"Stipulations in a contract as to time or otherwise, which according to the rules of equity are not deemed to be or have become of the essence of contract, are also construed and have effect of law in accordance with the same rules."

What does s.11 of the Law Amendment Reform (Consolidation) Ordinance mean? And what was the position in Hong Kong on 30 October 1873, the date on which the courts of equity and Common Law in England came together as the Supreme Court of Judicature ?

35. The position in England on that day and the accepted interpretation of s.41 of the Law of Property Act 1925 in England, is best explained in the judgment of Buckley LJ in Raineri v. Miles [1981] AC 1050 at pp.1058-1059. In a passage which the majority of the House of Lords (Lord Edmund-Davies, Fraser of Tullybelton, Russell of Killowen and Keith of Kinkel) accepted as correct in their judgments in the subsequent appeal to the House of Lords.

36. Buckley LJ said this :

"At common law a term of a contract stipulating when the contract should be performed was always regarded as an essential term of the contract, but, as Lord Parker pointed out in Stickney v. Keeble [1915] AC 386, 415, in contracts for the sale of land equity, having a concurrent jurisdiction, did not look upon the stipulation as to time in precisely the same light. Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion, and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.

Since the statutory fusion of law and equity in 1873 it has been enacted (Supreme Court of Judicature Act 1873, section 25(7), now re-enacted in slightly different language in the Law of Property Act 1925, section 41), that stipulations of a contract, as to time or otherwise, which according to rules of equity are not deemed to be or to have become of the essence of the contract are also to be construed and have effect at law in accordance with the same rules. The third parties rely on s.41 on the point of construction. But, as was pointed out by Lord Cairns and Rolt L.J. in Tilley v. Thomas [1867] L.R. 3 Ch. App. 61, the construction of a contract must be the same in equity as in a court of law. A clause which provides in terms that the contract shall be completed a named day cannot, in the absence of a clear context, be construed as meaning that it shall be completed on some later day. Its effect may be modified by equitable rules, but the meaning of the language cannot be. In equity a party to a contract who is seeking equitable relief was not barred merely by an earlier failure on his part to comply precisely with a completion date. So long as a court of equity would have disregarded a failure to comply with a time stipulation for the purpose of granting the equitable remedy of specific performance, it would have restrained an action at law based on that failure. In considering whether to restrain an action at law the Court of Chancery took cognizance of everything which had happened up to the date of the decree restraining the action at law.

Since the fusion of law and equity the High Court is to have regard to all those events and is to grant or withhold the common law remedy of damages for breach of contract upon the principles which would have actuated the Court of Chancery in permitting or restraining proceedings at law : Stickney v. Keeble [1915] A.C. 386, p.417 per Lord Parker. This is, in my opinion, the whole effect of the Law of Property Act 1925, section 41 relevant to this case. It does not negative the existence of a breach of contract where one has occurred, but in certain circumstances it bars any assertion that the breach has amounted to a repudiation of the contract. Thus, if a purchaser has failed to complete on the contractual completion date, he may still recover damages which he has suffered by reason of some default by the vendor if he was ready and willing to complete within a reasonable time after that date : per. Fry L.J., Howe v. Smith, 27 Ch.D.89, 103. This is not because the purchaser committed no breach of contract in failing to complete on the fixed date, but because equity would not allow the vendor to rely upon that breach in the circumstances."

37. Prior to 1 July 1997, by virtue of s.3 of the Interpretation of English Law Ordinance (now repealed), the common law and the rules of equity applied in Hong Kong. It follows that prior to reunification, the position in Hong Kong before 30 October 1873 with regard to stipulations in contracts as to time was exactly the same as it was in England before that date.

38. By Article 8 of the Basic Law and s.7 of the Hong Kong Reunification Ordinance, the laws previously in force in Hong Kong prior to 1 July 1997, including the common law and equity, are maintained. The position now, in November and December 1998, is exactly the same as it was prior to 1 July 1997.

39. I accept Buckley LJ's interpretation of s.41 of the Law of Property Act 1925 as being the correct interpretation of Hong Kong's analogous provision - s.11 of the Law Amendment Reform (Consolidation) Ordinance - and that it establishes the legal principles on which I must decide this issue.

40. As the Court of Appeal's decision in Ann Wong v. Wilson Cheung appears at variance with the binding statutory requirements of s.11 of the Law Amendment Reform (Consolidation) Ordinance, and not to represent a correct interpretation of the position with regard to contracts for the sale of land where the parties have not contracted to make time of the essence, I do not believe that I am bound by it.

41. So far as the plaintiff purchasers' failure to exchange a formal contract with the vendor defendant on 30 May 1997 is concerned, the effect of s.11 is that this did not operate as a repudiatory breach of the estate agent's contract entitling the defendant vendor to terminate that contract. Provided that the plaintiff purchasers exchanged within in a reasonable time after that date, the defendant vendor was not entitled to terminate the contract and forfeit the $150,000 deposit under Clause 7 of the estate agent's contract as liquidated damages for loss of the contract. However, it operated as a breach leading the plaintiff purchasers liable to pay the defendant vendor damages for any loss he incurred as a result of the delay in exchanging contracts. That much I believe is clear from Raineri v. Miles.

42. The defendant in his defence has not pleaded that he suffered any loss as a result of the failure to exchange contracts on 30 May 1997, and it is clear from the evidence that he suffered none. The balance of the deposit of $128,000 was paid to S.H. Leung & Co., his solicitors, on 30 May 1997, as provided for in Clause 2(b) of the estate agent's contract. He was not deprived of his right to this sum or any loss of interest on it that he may have been entitled to.

43. What then of the plaintiff purchasers' failure to meet the terms of S.H. Leung & Co.'s notice of 5 June 1997 requiring exchange by 5:00 p.m on that date?

44. As I understand it, the law is this; I take it from the judgments of Nourse and Purchas L.JJ. in Behzaidi v. Shaftsbury Hotels Ltd [1992] Ch 1. The notice cannot make time of the essence so far as the obligations in the original contract are concerned, because one party cannot unilaterally vary the terms of a contract by turning what was previously a non-essential term in it into an essential term. The effect of the notice is to bring the interference of equity with the legal rights of the parties to an end, so that the entitlements of the innocent party to terminate future performance of the contract is then governed solely by common law rules.

45. Given that the notice cannot have the effect of turning the non-essential term of the contract into a condition, the party giving the notice can only terminate where the failure of the other party to comply with its terms goes to the root of the contract, so as to deprive that party of a substantial part of the benefit to which he was entitled under its terms. A failure to comply with the terms of the notice can therefore only be used as evidence of a repudiatory breach; it is not a repudiatory breach in itself.

46. Although the notice can be served at the moment of breach - for it is not necessary to wait until there has been an unreasonable delay by the party in breach before serving the notice - the period of notice given must be reasonable. What is reasonable will depend upon all the facts and circumstances of each case. Factors to which the courts will have regard in assessing the reasonableness of the period of notice include :

- What remains to be done at the date of the notice;

- The fact that the party giving the notice has continually pressed for completion, or has before given similar notices which he has waived; or

- That it is especially important for him to obtain early completion.

47. To my mind, the period of time for compliance of no more than the hours of one working day of a solicitor's office is unreasonable. The only prejudice arising from the delay in exchanging the formal contract the defendant vendor could have suffered is the loss of an assurance that the transaction was proceeding as envisaged in the estate agent's contract. A binding agreement already existed between the parties. The estate agent's contract undoubtedly meets all the requirements of s.3 of the Conveyancing and Property Ordinance. S.H. Leung & Co. had received the balance of deposit, which Clause 2(b) provided for. The contractual date for completion was still 11 days away by 5:00 p.m. on 5 June 1997 and Daniel Wong & Partners tendered exchange the next day - 6 June. So whatever prejudice the defendant vendor suffered - and I cannot see that he suffered any, neither could Mr Cheng point to any in the course of argument at trial - was, as Purchas LJ said in Behzaidi "minimal". I am satisfied that the period provided for was too short and the non-compliance with it cannot be used as evidence of repudiatory breach by the plaintiffs. The defendant vendor was not entitled to repudiate the contract by reason of this non-compliance by the plaintiffs and by doing so he was in fundamental breach of the contract.

48. I turn now to the defendant vendor's claim that by asking for the amendment to Clause 32(a) of the formal agreement, the plaintiffs evinced an intention to repudiate the agreement. The defendant's case here is based on the passage in the judgment of Mr Ribeiro QC in Chu Wing Ning v. Ngan Hing Cheung and Others at pages 8 and 9 of the transcript, where he said :

"The position is obviously different where the parties fail to agree the contents of the formal sale and purchase agreement because one of them is insisting on terms being inserted which go entirely beyond what had been expressly or impliedly agreed in the provisional agreement. In such a case, continued insistence on such extraneous terms may constitute a repudiation of the provisional agreement which the other party may accept, bringing the contract to an end. The party insisting on the new term cannot, on such a failure to reach agreement, merely fall back onto the provisional agreement and seeks its specific performance. The repudiation having been accepted, nothing remains to be enforced."

49. It is an argument I find wholly unsupported by the evidence. The parties agreed that the premium had to be paid. They attempted to make provision for that in Clause 19 of the estate agent's contract. The plaintiffs' Solicitors' suggested amendment to Clause 32(a) was no more than a request that it be paid two days before completion. No doubt with their clients' best interests in mind, they would have liked an assurance that it would be paid in advance of completion in order to ensure that late payment did not delay completion. In any event the suggested amendment was not accepted by S.H. Leung & Co. and Daniel Wong & Partners accepted that, as may be seen from the fact that they tendered the plaintiff purchasers' signed part of the agreement bearing S.H. Leung & Co.'s suggested counter-wording on 6 June 1997. There was no insistence, "continued" or otherwise, that this amendment be incorporated into the formal agreement as pleaded in the defendant's defence.

50. As I believe I have demonstrated, the estate agent's contract was a sufficient memorandum for the purposes of s.3 of the Conveyancing and Property Ordinance and to the purist a formal agreement was unnecessary. But by referring to a formal agreement in Clause 2(b) of the estate agent's contract, the parties, as I have said, no doubt envisaged that their respective Solicitors would draw up between them a more impressive document. One that incorporated not only the terms they had agreed, better expressed, but also other terms dealing with deduction of title and the mechanics for completion, matters which were not provided for in the estate agent's contract and which could only have been resolved by negotiation. A clarification of Clause 19 was required, because as I have said, in English it makes little sense. It was no doubt with that in mind that S.H. Leung & Co. inserted the original wording of clause 32(a) in the draft formal agreement.

51. In clarifying the terms of the estate agent's contract and negotiating its additional terms, it was as much open to the plaintiff purchasers to put forward their, or their Solicitors' view of what those terms should be and how they were to be expressed, as it was for the defendant vendor, or his Solicitors to do so. The law does not accept that a vendor has the right to dictate the terms of the formal agreement. Provided that what the purchaser asks for is reasonable and is made as part of the negotiation process, and not demanded and maintained as a demand in circumstances which are patently unreasonable, a purchaser's request for a particular provision is not evidence of an act of repudiation. This was made abundantly clear by Godfrey JA in Keung Shiu Tang v. D.H. Shuttlecocks Ltd. (supra) where he said, at p.289 :

"If, during the course of the negotiations in these cases over the content of the formal sale and purchase agreement, one party or the other makes demands as to what is to go into the formal sale and purchase agreement which are so unreasonable that he must be taken to be demonstrating an intention no longer to be bound by the contract into which he has already entered, then he may well be held to have repudiated it.

But a repudiation is not to be lightly inferred. There is now a trilogy of cases in which the court has made it clear that the mere fact that you insist on what you think are your rights, even if you later turn out to have been wrong about that, is not to be treated as evincing an intention on your part to repudiate the contract."

The three cases Godfrey JA referred to were : James Shaffer Ltd v. Findlay Durham & Brodie [1953] 1 WLR 106, in which Singleton LJ, referring to a judgment of Atkin LJ in an earlier case, said this :

"After he had cited definitions of repudiation he added, 'They all come to the same thing, and they all amount at any rate to this, that it must be shown that the party to the contract made quite plain his own intention not to perform the contract."

Sweet & Maxwell Ltd v. Universal News Service Ltd [1964] 2 QB 699, where Harman LJ said, at p.703, in relation to the passage just cited :

"That again is the test, and judged by that test, I do not think the defendants in this case made it plain that they did not intend to perform the contract. It was attractively suggested that what they did was to say 'we will only perform the contract upon our terms and not on yours,' and that the contract they offered was a different contract from that which they were bound to perform and that therefore, they repudiated. But I do not think that a person who maintain, his view of the construction of what is, after all, a not very perspicuous document is repudiating because he says, 'my view of it is this, and this I will do' and the other man says, 'well, my view is different.' Let them go to the court and have the matter determined as they can. But to seize upon an attitude of that sort and call it repudiation in order to serve an object which was then of course dear to the hearts of the plaintiffs, who wanted to get rid of this deed, is not, in my opinion, justified, and I would therefore differ from the judge's view on that."

And Woodar Investment Development Ltd v. Wimpey Construction UK Ltd [1980] 1 WLR 277 (HL), where Lord Wilberforce agreed with what had been said in James Shaffer Ltd and Sweet & Maxwell.

52. Godfrey JA concluded by saying :

"Applying these well-settled principles of law to the facts of this case I find myself entirely unable to come to the conclusion that here we should infer from the conduct of the purchaser an intention to repudiate the contract. Having come to that conclusion, there is nothing left in the case. If the purchaser has not repudiated the contract, then it follows that the vendor must have done; because his solicitors' letter of 27th September 1991 clearly evinced an intention to treat the contract as at the end. Solicitors acting for vendors would do well to remember that the vendor under these provisional sale and purchase agreements has no more right than the purchaser to insist on what is to go into the intended formal sale and purchase agreement. If the parties differ, their differences should be resolved by application to the court, not by high-handed unilateral action such as (as here) the purported forfeiture of the purchaser's deposit by the vendor."

53. In this case, the request made was reasonable, it was made once and not pursued, in no way can it be said to demonstrate an intention by the plaintiff purchasers not to be bound by the estate agent's contract. This defence is wholly untenable.

54. It follows from the above, that I am satisfied, on the balance of probabilities, that the plaintiffs have proved this action and are entitled to the reliefs requested in their statement of claim. I will now hear counsel upon what orders I should make.

Representation:

Mr Jeremy Cheung, inst'd by M/s Daniel Wong & Partners, for the Plaintiffs

Mr Chris Cheng, inst'd by M/s Paul Kwong & Co., for the Defendant