Kensland Realty Ltd. v. Whale View Investment Ltd. and Another

FACV No. 10 of 2001

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 10 OF 2001 (CIVIL)

(ON APPEAL FROM CACV NO. 286 OF 2000)

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Date of Hearing: 9 and 10 October 2001

Date of Judgment: 10 December 2001

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J U D G M E N T

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Mr Justice Bokhary PJ:

1.I have had the advantage of reading Mr Justice Ribeiro PJ's judgment which I understand entirely reflects not only his view but also that of Mr Justice Nazareth NPJ and Sir Gerard Brennan NPJ. I agree with that judgment and understand that Mr Justice Chan PJ also agrees with it. Nevertheless I consider it worthwhile to emphasise certain points on the important legal issues which arise.

The questions of law before the Court

2.In Hong Kong the sale of land is routinely completed by way of undertaking rather than at a physical completion meeting. This is so even where the land is subject to an existing mortgage or (as in the present case) the sale is a sub-sale to be completed before completion of the head sale takes place. Where completion is by undertaking, the balance of the purchase price is not paid in simultaneous exchange for a duly executed assignment and any existing mortgagee's receipt operating as a release. Instead the balance of the purchase price is paid against the vendor's solicitors' undertaking to deliver such an assignment and release to the purchaser's solicitors within a specified time.

3.Completion by undertaking is favoured in Hong Kong for its speed and convenience. But it is recognised that it carries a risk. This risk is catered for by a system whereby the payment of the purchase price is split between the vendor and any other person or persons who must receive his or their money before the purchaser can expect good title. Accordingly it is standard for agreements for the sale and purchase of land in Hong Kong to contain (as the agreement in the present case does) an express term to the effect that the payment of the balance of the purchase price shall be by cashier's orders or solicitors' cheques in favour of such persons as the vendor may direct. And although such clauses are couched in terms of what the vendor may do, they must be taken to mean that the vendor is obliged to inform the purchaser how the balance of the purchase price is to be split. Indeed if an agreement for the sale of land does not expressly provide for split payment even though the land is subject to an existing mortgage or the sale is a sub-sale to be completed before completion of the head sale takes place, then a term for split payment would have to be implied. For it is unreal to imagine that in such circumstances any purchaser or his bankers would agree, or that any vendor would expect them to agree, to completion by undertaking without split payment protection.

4.Sometimes the split payment clause expressly stipulates the time by which split payment information must be given. This is obviously desirable. But sometimes (as in the agreement in the present case) the split payment clause contains no such express stipulation. It is common ground that in the absence of such an express stipulation, there must be an implied term as to the time for giving split payment information. The questions of law now before the Court are: (i) what is the time to be implied? and (ii) what are the consequences of failure on the vendor's part to give such information within time?

The facts

5.Kensland Realty Ltd entered into an agreement to purchase certain shop premises in Mongkok from Delight Holdings Ltd for $53 million. Kensland then entered into an agreement ("the Agreement") to sell those premises to Whale View Investment Ltd for $55 million. Such sale was to be by Kensland as confirmor. The deadline for completion of Kensland's own purchase from Delight was 5.00 p.m. on Tuesday, 2 September 1997. The deadline for completion of Whale View's purchase from Kensland was four hours earlier i.e. 1.00 p.m. on the same day. Hardly anything more need be said about Delight, and I will from now on refer to Kensland as "the Confirmor" and to Whale View as "the Purchaser".

6.Deposits totalling $8.25 million were paid by the Purchaser to the Confirmor, leaving a balance of $46.75 million to be paid by the Purchaser to the Confirmor upon completion. For that purpose, the Purchaser got a bank loan of $33 million. A series of hitches preceded the eventual finalisation of this loan. By the time when the last of these hitches was sorted out, there were 40 minutes left before the deadline for completion.

7.Clause 37 of the Agreement provided for payment of the balance of the purchase price by such cashier's orders or cheques in favour of such persons as the Confirmor may direct. The Purchaser's solicitors had long been pressing the Confirmor's solicitors for split payment information. But none was given until one hour and 47 minutes before the 1.00 p.m. deadline when the Confirmor directed that the balance of the purchase price be paid by nine cheques. The split payment information given at that stage contained a discrepancy. By the time when the correct split payment information was eventually received, one hour and 12 minutes remained before the 1.00 p.m. deadline.

8.As is standard in agreements of its kind, the Agreement expressly provided that time shall in every respect be of the essence. Twice during the 20 minutes or so before the 1.00 p.m. deadline, the Purchaser's solicitors, realising that they may not be able to meet that deadline, telephoned the Confirmor's solicitors to seek an extension. When they spoke to the solicitor handling the transaction, he said that he would have to consult the partner concerned and take instructions from the Confirmor. He did not revert to the Purchaser's solicitors, so they telephoned again, asking for the partner. They were told that he was out. When they asked to speak to the solicitor with whom they had earlier spoken, they were told that he had gone out to lunch.

9.The place for completion was the Confirmor's solicitors' offices. Because of the limit on the amount which the bank was willing to credit into the Purchaser's solicitors' account, part of the balance of the purchase price had to be paid by cashier's order. As the mathematics dictated, one of the split payments had to be partly by cheque and partly by cashier's order In the result eight cheques and two cashier's orders were involved. The eight cheques were brought to the Confirmor's solicitors' offices by the Purchaser's solicitors just after 1.00 p.m. To their surprise, they found there the solicitor and the partner both of whom they had been told had gone out. Shortly after the Purchaser's solicitors' arrival, their messenger arrived from the bank with the two cashier's orders. So the eight cheques arrived just after the 1.00 p.m. deadline, and the two cashier's orders arrived six minutes after that deadline.

10.The Confirmor refused to complete. It treated the Purchaser's failure to tender the eight cheques and two cashier's orders until some six minutes after the 1.00 p.m. deadline as a repudiatory breach. And it treated the Purchaser's deposit of $8.25 million as forfeited. Later that day, the Confirmor's own purchase of the shop premises from Delight was completed.

Proceedings commenced

11.On the following day, the Purchaser commenced proceedings. The Purchaser contended that the Confirmor was not entitled to treat the six minutes' delay as a repudiatory breach. Initially, the Purchaser sought specific performance. But when the property market fell a few months later, the Purchaser sought instead the return of its deposit and damages representing the profit which it would have made if the purchase had gone through and it had then sold the shop premises in the few weeks following 2 September 1997. The Purchaser also sued its own bankers, the Bank of East Asia ("the Bank") and its own solicitors, Messrs Tam, Pun & Yipp ("the Solicitors"), blaming both for the fact that completion had not taken place by the 1.00 p.m. deadline. The Bank, making the Solicitors a third party, sought an indemnity from them against any liability to the Purchaser.

12.Disputing the claim, the Confirmor counterclaimed. The most significant items of relief which it counterclaimed were: (i) a declaration that it was entitled to forfeit the deposit up to the contractual limit of 10% of the price at which the Purchaser had agreed to purchase the shop premises; and (ii) damages representing the difference between that price and the value of the shop premises when the lis pendens registered against them was lifted upon the abandonment by the Purchaser of its claim for specific performance.

At first instance

13.The action was tried by Deputy Judge Gill in the Court of First Instance of the High Court. As to the time within which the split payment information had to be given, the Purchaser pleaded that it was an implied term of the Agreement that such information had to be given within a reasonable time before completion to enable the Purchaser to comply with it. The judge accepted that there was an implied term that the Confirmor would give such direction within a reasonable time before completion. A reasonable time, he held, was the time "it would take for a reasonably competent conveyancer to check the figures and then comply with the request and complete, without undue pressure, before the deadline". He took the view that the split payment information in the present case had been given within such time. The failure to meet the deadline was, he held, due to the fact that the two cashier's orders were not issued until 12 minutes before the deadline. And this was due, he held, to mistakes made by the Solicitors in preparing the documents required by the Bank.

14.Accordingly, by the judgment which he delivered on 5 April 2000, the judge dismissed the Purchaser's claim against the Confirmor and gave the Confirmor judgment on its counterclaim. He limited the award thereunder to so much of the deposit as represented 10% of the price at which the Purchaser had agreed to purchase the shop premises. He dismissed the Purchaser's claim against the Bank. But he gave judgment for the Purchaser on its claim against the Solicitors, limiting the award thereunder as he had limited the award against the Purchaser on the Confirmor's counterclaim. Since no liability to the Purchaser was found against the Bank, it did not need any indemnity from the Solicitors.

15.As to the costs of the claim and counterclaim, the judge awarded costs: (i) to the Confirmor and the Bank against the Purchaser; and (ii) to the Purchaser against the Solicitors, such costs to include reimbursement to the Purchaser by the Solicitors of the costs ordered against the Purchaser in favour of the Confirmor and the Bank. The costs of the third party proceedings were awarded to the Bank against the Solicitors.

In the Court of Appeal

16.The Solicitors appealed to the Court of Appeal (Keith, Stock and Le Pichon JJA) which gave its judgment on 23 January 2001. In contending that judgment should not have been given in favour of the Confirmor against the Purchaser, the Solicitors contended that it was the Confirmor, not the Purchaser, which had been in repudiatory breach. The Confirmor and the Purchaser each appealed to the Court of Appeal against the limit which the judge had placed on the award in its favour. The Bank was not a party to any proceedings after the first instance stage. As a party, the Bank dropped out of the picture after the judge decided in its favour.

17.As to the shape of the case before the Court of Appeal, Keith JA, giving the judgment of that court, explained:

" Only the Solicitors are appealing against the judge's findings on liability. Thus, there is no appeal by the Purchaser against the dismissal of the Purchaser's claim against the Confirmor. However, the Solicitors are appealing not only against the judgment given against them in favour of the Purchaser, but also against the dismissal of the Purchaser' s claim against the Confirmor. Counsel for the Confirmor did not contend that the Solicitors were not entitled to appeal against the dismissal of the Purchaser's claim against the Confirmor, although he naturally sought to support to the judge's dismissal of the Purchaser's claim against the Confirmor. However, both the Confirmor and the Purchaser are appealing against the limits placed by the judge on the awards of damages."

18.Two terms were implied by the Court of Appeal. These were:

"(i) in the event of the Confirmor exercising its right under clause 37 of the agreement to direct how the balance of the purchase price was to be paid, the Confirmor would give that direction in sufficient time for the Purchaser to be able to comply with it, without undue pressure, by the deadline for completion, and

(ii) in the event of such a direction being given too late for the Purchaser to be able to comply with it, without undue pressure, by the deadline for completion, the Confirmor would grant the Purchaser such an extension of time as the Purchaser reasonably required to comply with the direction."

19.The Court of Appeal held that, in breach of the first implied term, the split payment information in the present case was not given in time for the Purchaser to arrange, without undue pressure, for split payment to be made by the deadline for completion. Therefore, the Court of Appeal held, the Confirmor's refusal to extend that deadline was in breach of the second implied term. The Confirmor and the Purchaser agreed before the Court of Appeal that if the Purchaser were to succeed, then the Confirmor would be liable to (i) return the Purchaser's $8.25 million deposit and (ii) pay the Purchaser damages in the sum of $8 million.

20.On the foregoing basis, the Court of Appeal (i) set aside the judge's orders against the Purchaser and the Solicitors; (ii) entered judgment for the Purchaser against the Confirmor in the sum of $16.25 million with interest at the rate of 10.5% from 3 August 1997 when the writ was issued until 23 January 2001 when the Court of Appeal gave judgment; and (iii) ordered that the Confirmor pay the Purchaser and the Solicitors their costs of the action and the appeal.

21.The Confirmor now appeals to this Court, making the Purchaser the 1st respondent and the Solicitors the 2nd respondent.

Implied term as to the time for giving split payment information

22.Where completion is by undertaking and the land is subject to an existing mortgage or the sale is a sub-sale to be completed before completion of the head sale takes place, split payment of the balance of the purchase price is necessary in order that the purchaser may part with his money reasonably confident that he will receive good title to the property clear of any encumbrances. Therefore he cannot be expected to complete within the time fixed for completion unless he is given the necessary split payment information in time for him to arrange for split payment to be effected before the expiry of the completion deadline. Where such an agreement is silent as to the time by which the vendor must give the purchaser the split payment information, there must be an implied term as to such time.

23.In my view, any term to be implied in this context must comply with the conditions stated by Lord Simon of Glaisdale when delivering the advice of the majority in the Privy Council case of B.P. Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at p.26:

"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

24.Mr John Griffiths SC for the Confirmor referred to Lord Wilberforce's discussion in Liverpool City Council v. Irwin [1977] AC 239 at pp 253F-254A. Mr Griffiths submitted that since the term to be implied involved payment of the balance of the purchase price, the only time to be implied is the time strictly necessary to implement the mechanics of payment. In other words, Mr Griffiths submitted, the time available to a purchaser who had to make split payment is no more than the time available to a debtor who has to make repayment on demand.

25.In Bank of Baroda v. Panessar [1987] 1 Ch 335 at p.348 B-D Walton J (repeating a statement which he had made in an unreported case in 1975) said:

"Money payable 'on demand' is repayable immediately upon demand being made. Indeed, so much is this so that there is no doubt that the periods of time mentioned in the Limitation Act 1939 commence running from the date of the demand and not from any later time: see Bradford Old Bank Ltd v. Sutcliffe [1918] 2 KB 833. Nevertheless, it is physically impossible in most cases for a person to keep the money required to discharge the debt about his person. He may in a simple case keep it in a box under his bed; it may be at the bank or with a bailee. The debtor is therefore not in default in making the payment demanded unless and until he has had a reasonable opportunity of implementing whatever reasonable mechanics of payment he may need to employ to discharge the debt. Of course, this is limited to the time necessary for the mechanics of payment. It does not extend to any time to raise the money if it is not there to be paid."

26.I accept of course that a purchaser is not entitled to refrain from taking any steps to line up finance until he has received split payment information. But beyond that the position of a purchaser who has to make split payment is by no means analogous with that of a debtor who has to make repayment on demand.

27.Even though finance has been lined up, there may well be a number of checks to be made and authorisations to be obtained after the split payment information has been communicated to the lending institution and before draw down can proceed. That, the evidence discloses, was the position in the present case. It would be wrong to assume that draw down is a mere matter of the mechanics of signing cheques or drawing up cashier's orders. And even after the cheques or cashier's orders involved in any given case have been prepared and checked by the purchaser's solicitors, the instruments still have to be brought to the place for completion, usually the vendor's solicitors offices.

28.For an agreement for sale and purchase to be effective, a term must be implied to the effect that the requisite split payment information must be given within such time prior to completion as to give the purchaser the time which he reasonably requires to arrange for and make split payment before the expiry of that deadline. In assessing the time reasonably required, account must be taken of all the matters of which the parties to the transaction in question were aware, or ought reasonably to have contemplated, at the time when the contract was made. In the normal way, these matters would include the involvement of a lending institution and solicitors. It is also to be understood that the time reasonably required is not to be set at the minimum time in which things could be done under ideal conditions.

Consequences of failure to give split payment information within time

29.The Court of Appeal thought that the consequence of a vendor's failure to give split payment information within time was the operation of a further implied term, being one that the vendor would grant the purchaser such an extension of time as the purchaser reasonably required to comply with the late split payment direction. That is open to two objections. First, it forces a late completion on the purchaser. Secondly, it involves the impermissible course of implying a term which contradicts an express term, namely the one for completion by the stated deadline with time being stated to be of the essence.

30.Failure on a vendor's part to give the requisite split payment information within time is a breach of contract on his part. Where such failure results in a completion deadline being missed, the purchaser is not limited to treating such failure as an anticipatory breach with repudiatory effect. He may instead, if he so chooses, treat the contract as alive and tender split payment as soon as he reasonably can having regard to when he was given split payment information. Even if such tender comes after the completion deadline, the vendor cannot reject it. For he could only reject it if he is entitled to insist on that deadline even though his breach of contract caused it to be missed. And I have no doubt that he is not entitled to do that. In New Zealand Shipping Co. Ltd v. Societe des Ateliers et Chantiers de France [1919] AC 1 at p.8 Lord Finlay LC referred to the principle laid down by Sir Edward Coke that a man shall not be allowed to take advantage of a condition which he himself brought about. Whatever else that principle may or may not encompass, I have no doubt that it encompasses the proposition that where a state of affairs is brought about by a breach of contract, the law does not permit the party in breach to take advantage of that state of affairs to the detriment of the other party.

Whether split information payment not given within time

31.The next question in this appeal is whether the split payment information in the present case was given within a reasonable time before completion. This was a question of fact and degree of the kind which the Court of Appeal was in as good a position as the judge to decide. The time allowed was very tight. Mr Griffiths has advanced a very skilful argument to the effect that, but for mistakes made by the Solicitors in preparing the documents required by the Bank before draw down, there would nevertheless have been enough time to complete by the completion deadline. However that is based on the "mechanics of payment" test which I have rejected. And even on that test, it would have been, as Mr Griffiths realistically accepted, a near run thing. On the true test, the time allowed was insufficient. The Solicitors' mistakes are open to criticism. But they were made while time was tight, and not enough time was left for correcting them. In my view, the Court of Appeal was correct in disagreeing with the judge and concluding that the split payment information had not been given within time.

Whether the Purchaser tendered payment as soon as he reasonably could

32.In tendering split payment only six minutes after the completion deadline, the Purchaser plainly tendered such payment as soon as it reasonably could having regard to the lateness of the split payment information. That being so, for the reasons which I have given earlier, the Confirmor was not entitled to reject the payment tendered, and put itself in repudiatory breach by rejecting such payment.

Result

33.Accordingly I would dismiss this appeal and affirm the Court of Appeal's orders, including those as to the costs in the courts below. As to the costs in this Court, I would make an order nisi for costs in favour of the Purchaser and the Solicitors against the Confirmor, such order nisi to become absolute within 21 days if no written application for some other order as to costs is made within that time. As to the position if such an application is made, I would order that the matter be dealt with on written submissions for which procedural directions should be sought from the Registrar if the parties are unable to agree on procedural matters in that regard.

Mr Justice Chan PJ:

34.I agree with the judgments of Mr Justice Bokhary PJ and Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

The contract

35.In May 1997, the appellant ("the vendor") entered into a contract ("the contract") to sell a property consisting of a shop in Mongkok to the 1st respondent ("the purchaser") for $55 million. The 2nd respondents ("the purchaser's solicitors") were solicitors acting for the purchaser in the transaction. Representing the vendor were Messrs Tai, Tang & Chong ("the vendor's solicitors"). The Bank of East Asia, Limited ("the bank") had agreed to provide mortgage finance for the purchaser's acquisition and was originally sued as a defendant. However, no claim is now made against the bank and it is not a party to this appeal. The vendor was selling as confirmor, having itself contracted to purchase the property from Delight Holdings Ltd ("the head vendor") for $53 million.

36.Material terms of the contract include the following :-

Clause 3

"3. The purchase of the Property shall be completed at the offices of Messrs. Tai, Tang & Chong, Solicitors between the hours of 10:00 a.m. and 1:00 p.m. ...... on or before [2nd September 1997] (hereinafter called "the date of completion") when the residue of the purchase money shall be fully paid and the Vendor shall execute and shall procure the Head Vendor and all other necessary parties (if any) to execute a proper assignment or assurances in favour of the Purchaser or his nominee or nominees, sub-purchaser or sub-purchasers of the Property, free from incumbrances ......"

Clause 12

"12. Time shall in every respect be of the essence of this Agreement."

Clause 13(a)

13(a). If for any cause (other than the default of the Vendor ......) the Purchaser shall fail to complete the purchase of the Property in accordance with the terms and conditions of this Agreement on its part to be performed and observed and/or any one of the payments payable hereunder or the balance of the purchase price shall not be paid on or before the respective due dates specified ...... the deposit to the extent of not exceeding 10% of the purchase price paid by the Purchaser to the Vendor shall be absolutely forfeited to the Vendor who may (without tendering an assignment to the Purchaser) rescind the sale and resell the Property ...... and any deficiency in price and all expenses attending such resale or any attempted resale shall be borne by the Purchaser and shall be recoverable by the Vendor as a debt due from the Purchaser to the Vendor. Any increase in price realised by any such resale shall belong to the Vendor."

Clause 14

"14. If the Vendor shall for any cause (other than the default of the Purchaser) fail to complete the said sale in accordance with the terms hereof, the said deposit(s) and all moneys paid hereunder shall forthwith be returned to the Purchaser who shall also be entitled to recover from the Vendor such further damages (if any) over and above the said deposit(s) as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor. Nothing in this Agreement contained shall be so construed as to prevent the Purchaser from bringing an action and obtaining a decree for specific performance either in lieu of the aforesaid damages or in addition thereto as the Purchaser may have sustained by reason of the neglect or refusal of the Vendor to complete the said sale at the time and in the manner aforesaid."

Clause 37

"37. It is hereby agreed that in respect of the payment of the balance of the purchase price required to be made by the Purchaser hereunder, the Purchaser shall deliver to the Vendor's Solicitors on the date on which such payment is required to be made hereunder cashier order(s) issued by and/or Solicitors' cheque(s) drawn on a licensed bank in Hong Kong in favour of such person(s) as the Vendor or the Vendor's Solicitors may direct for the relevant amount and the obligation of the Purchaser to make payment hereunder shall not be deemed discharged unless payment is made in the manner hereinbefore provided."

Transaction not completed

37.The transaction was never completed. The purchaser's solicitors arrived at the vendor's solicitors' offices and tendered the balance of the purchase monies six minutes after expiry of the period for completion stipulated by Clause 3, that is, at 1:06 pm on 2 September. The vendor refused to accept late tender and asserted the right to treat the contract as repudiated and to forfeit the deposits paid thereunder.

38.Where, as by Clause 12, time is made of the essence, it is well established that the time stipulated for completion must be strictly complied with and that no equitable or other relief is granted simply because the purchaser could be said to have been only slightly late: Union Eagle Ltd v. Golden Achievement Ltd [1997] AC 514. However, in the present case, the purchaser complains that its inability to complete in time was due to the vendor's default.

39.The vendor gave a direction that, on completion, the purchaser should pay the balance of the purchase price by nine cheques or cashier orders drawn in favour of various specified payees ("the split cheque direction"). Despite earlier requests made by the purchasers to be provided with any such direction, it was only at 11:13 am on 2 September, the day agreed for completion, that the purchaser's solicitors first received a fax containing the same.

40.Clause 37 does not lay down any deadline by which a vendor must give a split cheque direction. However, the parties all accept that the power to give such a direction must be subject to an implied obligation requiring the vendor to do so a reasonable time before completion was due.

41.The purchaser contends that giving the split cheque direction at 11:13 am (with a correction at 11:48 am), less than two hours before expiry of the specified completion period, constituted a breach of the implied term and that its own failure to meet the contractual deadline for completion was attributable to the fact of such breach.

42.On 3 September 1997 the purchaser issued a writ claiming specific performance of the contract of sale by the vendor. Subsequently the purchaser amended its statement of claim against the vendor to claim damages and consequential relief including repayment of the $8,250,000.00 which it had paid to the vendor by way of deposit and part payment of the purchase price.

Decisions below

43.At the trial ([2000] 2 HKLRD 261), His Honour Judge Gill, sitting as a deputy judge of the Court of First Instance, decided that the split cheque direction, given at 11:13 am, had left time "sufficient for the experienced conveyancer to comply without risk of being too late for completion" and that accordingly, there had been no breach. The vendor was therefore held entitled to forfeit the deposits when the purchaser missed the deadline for completion. However, the judge also held that it was due to the negligence of the purchaser's solicitors that the completion monies had not reached the vendor's solicitors in time, making the purchaser's solicitors liable in damages to the purchaser. He assessed such damages as the value of the forfeited deposits.

44.The Court of Appeal ([2001] 2 HKLRD 342) reversed the judge's decision. Keith JA, giving the judgment of the court, held that it was appropriate to imply a term having two limbs in relation to the timeous giving of a split cheque direction, namely, that :-

"(i) in the event of the vendor exercising its right under clause 37 of the agreement to direct how the balance of the purchase price was to be paid, the vendor would give that direction in sufficient time for the purchaser to be able to comply with it, without undue pressure, by the deadline for completion, and

(ii) in the event of such a direction being given too late for the purchaser to be able to comply with it, without undue pressure, by the deadline for completion, the vendor would grant the purchaser such an extension of time as the purchaser reasonably required to comply with the direction."

45.The Court of Appeal held that the split cheque direction was in the circumstances given too late. The court indicated, without so deciding, that half a working day would have been sufficient. In consequence, it was held that by virtue of the second limb of the implied term, the vendor came under an obligation to grant the purchaser an extension of time to tender the balance and, in refusing to accept the tender made at 1:06 pm, the vendor had repudiated the contract.

46.The Court of Appeal appears to have held that such repudiation was accepted by the purchaser's issue of the writ on the next day, 3 September 1997 (mistakenly stated in the judgment to be 3 August). The court also exonerated the purchaser's solicitors, holding that any contribution which they may have made to the late tender was irrelevant since the vendor was required to grant an extension and since the relevant breach was constituted by the vendor's rejection of the tender at 1:06 pm.

47.The purchaser was therefore held entitled to a return of its deposits totalling $8.25 million, plus damages for loss of bargain amounting to $8 million, reflecting the parties' agreement that the shop was worth $63 million on 2 September (mistakenly stated to be 2 August), plus interest on those sums.

The issues on appeal

48.On the vendor's appeal to this Court, the issues are as follows :-

(a) The parties being agreed that a term must be implied requiring the split cheque direction to be given a reasonable time before completion was due, what is the nature and scope of such implied term?

(b) On the facts, was the vendor in breach of the implied term?

(c) If so, bearing in mind the conduct of the purchaser's solicitors, was late tender of the balance caused by the vendor's failure to allow reasonable time?

(d) What legal consequences flow from the fact that the purchaser tendered, and the vendor rejected, payment of the balance six minutes after expiry of the stipulated period for completion?

49.The first two issues arise only because Clause 37 does not provide for a deadline by which the vendor must give any desired split cheque direction. An express provision, such as that contained in the contract between the vendor and the head vendor, requiring the latter to give at least one day's notice of the necessary payment details, is obviously desirable.

The nature and scope of the implied term

50.In Hong Kong, where interests in land are frequently regarded as marketable commodities, a method which facilitates the speedy completion of contracts for the sale and purchase of such interests is desirable, especially for sub-sales in a rising or falling market. The method which has been almost universally adopted was considered by the Privy Council in Edward Wong Finance Co Ltd v. Johnson Stokes & Master (A Firm) [1984] AC 296. Lord Brightman, quoting Roberts CJ, described the method :-

"...... the solicitor who is acting for the purchaser/mortgagor forwards the purchase price to the vendor's solicitors (whether by cash, cashier's order, certified cheque or ordinary cheque) in return for an undertaking by the latter to forward the necessary documents of title, duly executed, to the purchaser's solicitor within a stated period."

51.In the present case, this method of completion was expressly provided for in the vendor's agreement with the head vendor and was plainly contemplated for use in the sub-sale as between the vendor and the purchaser.

52.The Privy Council pointed out the steps which the solicitor for the purchaser ought to take in order to protect the interests of the purchaser when the purchase price is paid. Lord Brightman said (at pp 307H-308B) that what was needed :-

"...... is that the purchaser's or lender's solicitor should take reasonable steps to satisfy himself that the vendor's or borrower's solicitor has authority from his client to receive the purchase money or loan; and, in the case of property already subject to a mortgage which is to be discharged, so much of the purchase price or loan as is needed to discharge the prior mortgage could be paid by cheque or draft in favour of the mortgagee or his duly authorised agent, and not by a draft in favour of the vendor's solicitor."

53.The requirement of split payments in cases involving purchases of land subject to a mortgage which has to be discharged (and by logical extension, involving a confirmor's sale subject to a head vendor's interest which likewise has to be cleared) represents the Hong Kong practice, as reflected in guidance provided by the Law Society. After the Court of Appeal's judgment in Edward Wong Finance, Circular 84/81 was issued, stating that completion by undertaking was still acceptable but adding in its paragraph 4 :-

"The Council is further of the view that a solicitor acting for a purchaser should split the completion cheque between the vendor's solicitor and the vendor's mortgagee. In a typical instance, where the property is subject to a registered mortgage, the vendor's solicitor should give to the purchaser's solicitor a written memorandum showing the principal and interest required to discharge the mortgage. The purchaser's solicitor should, on completion, send to the vendor's solicitor his cheque for this amount payable to the mortgagee direct. The balance of the sum payable upon completion should be paid to the vendor's solicitor. It is important that where the mortgagee's cheque is drawn in favour of a bank the cheque should state the name of the party to whose credit the cheque is to be paid" (see Wilkinson & Sihombing, Hong Kong Conveyancing, Vol 2(C), XIV[31]).

54.After the Privy Council's decision, the Law Society's Circular 218/91 stated :-

"As you know, the Privy Council has since reversed the decision of the Court of Appeal in the above case. In view of the Privy Council's decision, some members have enquired whether the principles set out in Circular 84/81, and in particular, paragraph 4 thereof, still hold good. The Council wishes to confirm that such principles still apply and should be followed. Indeed, that Circular was drawn to the attention of the Privy Council which approved those principles." (Ibid.)

55.In the ordinary case where the Hong Kong method of completion is to be adopted for completion of a sub-sale prior to completion of the head sale or for completion of a sale where the property is subject to a mortgage, both parties understand that a split cheque direction has to be given to enable the interests of the purchaser to be adequately protected when the purchaser's solicitor pays the purchase price without obtaining the stipulated title in exchange. That is the established usage in such cases. The court will imply a term that, in order to permit the purchaser's solicitor to complete the contract on behalf of his client, the vendor or his solicitor will provide a split cheque direction. Such a term will be implied because, to adopt the language of Lord Wilberforce in Liverpool City Council v. Irwin [1977] AC 239 at 253, the term is one that "both parties know and would, if asked, unhesitatingly agree to be part of the bargain." The implication falls within the first category to which Lord Wilberforce referred in that case.

56.Therefore, where the contract contains an express clause empowering the vendor or the vendor's solicitor to give a split cheque direction, there is an implication that the power will be exercised. The more tendentious question - the question which arises in this case - is the time for the giving of the direction. The answer to that question is not to be ascertained from established usage but rather by implication from the terms of the contract itself. In the absence of an express provision, business efficacy demands that the notice be given so as to allow the purchaser's solicitor a reasonable time in which to do what has to be done to comply with the notice prior to the time fixed for completion. And that time varies with the circumstances of the particular case.

57.For the contract to be workable, the parties must be taken to have intended that the giving of any split cheque direction would not be inconsistent with the purchaser's practical ability to effect timeous completion.

(i) The Court of Appeal's implied term

58.The term implied by the Court of Appeal is set out above. The purchaser's solicitors, represented by Mr Joseph Fok SC, appearing with Mr Russell Coleman, sought to support that ruling. So did Mr Edward Chan SC, appearing with Mr Wallace Cheung for the purchaser, although his position was essentially that his clients were in any event entitled to compensation for their loss, either as against the vendor or as against the purchaser's solicitors and that he was to that extent "neutral".

59.In a well-known passage, Lord Simon, expressing the majority opinion of the Privy Council, sets out the requirements for implying a term in a written contract :-

"...... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." BP Refinery (Westernport) Pty Ltd v. President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26.

60.The fifth requirement is of importance. While room for argument exists as to how precisely the first limb of the Court of Appeal's implied term ought to be formulated, no one doubts that some such term, importing a "reasonable time" condition, must be implied. However, the second limb of the Court of Appeal's implied term offends against Lord Simon's fifth requirement and cannot be supported.

61.By the combined effect of Clauses 3 and 12, the parties expressly agreed (i) that the purchaser was bound to tender the balance on completion and, as completion was to take place between 10:00 am and 1:00 pm on 2 September, the balance was to be tendered by no later than 1:00 pm; and (ii) that time was of the essence in respect of that obligation, so that, in the absence of any supervening event excusing late tender, the vendor was entitled to treat non-observance of the time limit as a breach of an essential term entitling the vendor to rescind. To hold that the vendor was under a duty by virtue of an implied term to extend the time for completion beyond 1:00 pm and therefore under a duty to accept tender at 1:06 pm, is unsustainable since such a term contradicts the two express clauses and cannot be implied.

62.This flaw in the Court of Appeal's reasoning wholly undermines its decision since its findings that the vendor was liable and that the purchaser's solicitors should be exonerated, rest crucially on the existence and breach of the unsustainable implied term.

(ii) The vendor's approach

63.The approach adopted by Mr John Griffiths SC, appearing with Mr Benjamin Chain for the vendor, was understandably aimed at minimising the period of time necessary to satisfy the implied reasonable time requirement.

64.Mr Griffiths referred to the categories of implied term discussed by Lord Wilberforce in Liverpool City Council v. Irwin [1977] AC 239 at 253-255, and submitted that the term in the present case ought to be implied as a legal incident of the kind of contract in question rather than adopting any broader business efficacy approach. He argued that since the implication was of a term qualifying Clause 37, which is a clause dealing with payment of the purchase monies, the Court ought to characterise the relevant type of contract as one for the payment of money. It follows, so he argued, that the term to be implied as an incident of such a contract imposes requirements which relate only to what is strictly necessary for implementing the mechanics of payment. In support, he relied on a series of cases, all discussing the time allowable to a debtor to effect repayment when demand is made in respect of a debt contracted to be repayable on demand.

65.For instance, he relied on Massey v. Sladen (1868) LR 4 Exch 13, where, in relation to a bill of sale requiring the debtor to make repayment "instantly on demand", Kelly CB held that a reasonable time must nonetheless be allowed, stating :-

"There can be no doubt the parties contemplated that such an opportunity should be afforded him; and even the word 'instantly' allows of a perfect compliance with the deed by offering to the defendants his cheque for the amount, and if it were refused, taking the time necessary to enable him to obtain the money by cashing it." (at 18)

66.He also relied on cases including Bank of Baroda v. Panessar [1987] 1 Ch 335, and Sheppard & Cooper Ltd v. TSB Bank plc [1996] 2 All ER 654. In the former decision, Walton J (at 348) reiterated a view of the law that he had taken in an earlier case in the following terms :-

"Money payable 'on demand' is repayable immediately upon demand being made. Indeed, so much is this so that there is no doubt that the periods of time mentioned in the Limitation Act 1939 commence running from the date of the demand and not from any later time: see Bradford Old Bank Ltd v. Sutcliffe [1918] 2 KB 833. Nevertheless, it is physically impossible in most cases for a person to keep the money required to discharge the debt about his person. He may in a simple case keep it in a box under his bed; it may be at the bank or with a bailee. The debtor is therefore not in default in making the payment demanded unless and until he has had a reasonable opportunity of implementing whatever reasonable mechanics of payment he may need to employ to discharge the debt. Of course, this is limited to the time necessary for the mechanics of payment. It does not extend to any time to raise the money if it is not there to be paid."

67.On the basis of such authorities, Mr Griffiths contended that in the present case, the implied obligation excludes from the reckoning of "reasonable time" any periods that might be needed to arrange finance or to draw up or check conveyancing documents or bank security documents or otherwise to go through procedures relating to completion of the broader sale and purchase or mortgage transactions. Allowance should be made only for such time as may reasonably be needed to see to the mechanics of effecting payment of the purchase monies, that is, to have the payment instruments drawn up, issued and delivered to the vendor's solicitors. The precise period required may depend on the nature of the split cheque direction given. Thus, more time would have to be allowed if the direction was to deliver 100 cheques as opposed to say, two cheques. Accordingly, in deciding how much notice to give, it was argued that the vendor is entitled to assume that the purchaser and its bankers and solicitors had previously taken any other required steps, extraneous to those strictly involving payment. Mr Griffiths furthermore submitted that where, as in the present case, both firms of solicitors were in the Central District, the vendor could legitimately assume that any cashier order required would be issued by, or by prior arrangement with, a branch of the purchaser's bank situated within or close to Central so that the time needed to deliver the instrument to the vendor's solicitors would be a matter of minutes.

68.Adopting this "mechanics of payment" approach, and bearing in mind that the split cheque direction required the issue of nine cheques or cashier orders, the vendor submits that the implied obligation was to give only a short period of notice, a period certainly less than the 1 hour and 47 minutes actually allowed by the vendor to the purchaser.

(iii) The proper formulation of the implied term

69.The vendor's approach cannot be accepted. As indicated above, the necessity for implying a reasonable time qualification on the operation of Clause 37 arises as a matter of business efficacy and not, as Mr Griffiths suggests, because such a term is an incident of the relevant type of contract. But even if the implied term were to be approached on the latter basis, it is a mis-characterisation to say that the relevant contract is one for the payment of money, ignoring the obvious fact that it is a contract for the sale and purchase of a shop. Mr Griffiths' reliance on the cases involving contracts for the repayment of debts due on demand and their adoption of a narrow "mechanics of payment" test rests on this mis-characterisation and is fallacious.

70.The contract is one for the sale and purchase of property in Hong Kong. In assessing what constitutes a reasonable period for present purposes, the court takes into account all matters relevant to completing such a contract which both parties are, or may objectively be taken to be, aware of at the time of making the contract. The time which the vendor must allow is the time reasonably required by the purchaser to perform its obligations in relation to such completion, in the ordinary course of business.

71.Thus, while there may be rare possible exceptions, one may assume generally that purchasers will rely on mortgage finance from a bank or some other financial institution and will need the assistance of solicitors in respect of title and the other legalities of the transaction. A vendor would need to have good reason to approach the transaction making any other assumption. It follows that an objective consideration of the steps a purchaser is likely to have to take in completing the contract must include any necessary dealings with its bankers and solicitors.

72.To take the bankers first, it is right to accept, as the parties agree, that one approaches the question of reasonable time assuming that the purchaser has previously secured its banker's commitment to any needed finance. This is so since the implied term relates to the time needed for completion and arranging finance is properly regarded as preceding, rather than part of, that completion process. On the other hand, one must realistically factor in a reasonable period to enable the purchaser to apply for a draw down of its loan and for the purchaser's bankers to go through the procedures followed by them in the ordinary course, involving any final checks on the relevant documents, credit authorisations, and so forth, before allowing the balance of the loan to be drawn by the purchaser. The bank is, after all, likely to be lending a substantial sum on the security of the property. It is therefore quite unreal to pare away these commercially essential steps and to postulate that the time needed for the purchaser's completion is limited to the few minutes required for signing cheques or drawing up cashier orders.

73.Similarly, a "mechanics of payment" test ignores the essential role to be played by the purchaser's solicitors in effecting completion on the purchaser's behalf, particularly where, as in the present case, the Hong Kong method of completion is to be adopted.

74.Plainly, a vendor giving a split cheque direction must make reasonable allowance for the purchaser's solicitors' performance of their duties in relation to the completion. The evidence in the present case indicated that it was usual, after issue of any cashier orders, for the instruments to be collected from the bank and checked by the purchaser's solicitors before they were forwarded to the vendor. As Mr Fok pointed out, input of this type by the purchaser's solicitors usually culminates in their preparation of a completion letter addressed to the vendor's solicitors. The letter generally encloses and lists the financial instruments drawn in accordance with any split cheque direction, as well as the Assignment engrossed for execution. It also sets out the undertakings required from the vendor's solicitors, makes proposals as to the purchaser's taking possession of the property and, subject to the stipulated conditions, authorises the vendor's solicitors to release the monies to their clients. The completion letter itself no doubt involves, in part, use of standard clauses, however, its issue is preceded by the exercise of professional care and skill in relation to the particular transaction in question.

75.Reasonable allowance should also be made for the time needed for delivery of the payment instruments and accompanying documents by hand to the agreed venue for completion, taking into account any actual notice of a possible requirement for an unusually long or time-consuming journey. At the hearing, there was discussion of the time needed to go from the bank branch issuing the cashier orders to the vendor's solicitors' premises. However, as indicated above, in the ordinary course, it is more likely to involve travel from the offices of the purchaser's solicitors to those of the vendor's solicitors as the former will usually first have collected and checked the bank instruments before sending them on.

On the facts, was the vendor in breach and if so, did this cause the purchaser to miss the completion deadline?

76.The second and third issues identified above may be dealt with together. Applying the approach discussed above to the facts as found, there can be no doubt that in giving the split cheque direction at 11:13 am, the vendor failed to allow the purchaser a reasonable time to comply before completion was due.

77.The material events, which are not in dispute, may be summarised as follows :-

(a) As soon as the vendor's solicitors' fax of 11:13 am was received, the purchaser's solicitors prepared a letter to the bank enclosing the completion documents and setting out details of the sums and payees to be inserted in the two cashier orders to be issued, totalling $33 million. The fax gave details of other cheques and payees, but these did not require action by the bank, being cheques to be drawn by the purchaser's solicitors who had already been put in funds.

(b) These documents were delivered by a messenger who left the purchaser's solicitors' offices at 11:35 am and handed over the documents to the bank at 11:57 am, some 22 minutes later.

(c) The bank took less than an hour to process the draw down. An officer in the relevant department went through the documents, checking to see that the bank's requirements were satisfied, signing the cashier orders at 12:25 pm. The file was then passed to her supervisor, who went through it again and added her signature to the cashier orders at about 12:45 pm.

(d) The messenger was given the cashier orders a few minutes later and was then instructed by telephone to go directly to the vendor's solicitors' offices where she arrived and tendered the documents at about 1:06 pm.

78.The purchaser's solicitors cannot be said to have been in any way dilatory in reacting to the split cheque direction once it was received.

(a) Indeed, in the fax of 11:13 am, the vendor's solicitors had made an error by slightly understating the amount of one of the cheques which the purchaser's solicitors were to draw. However, that error, corrected by fax received at 11:48 am, did not hold up the transaction since, relying on the information in the 11:13 am letter, the purchaser's solicitors had sent their messenger off to the bank with the necessary documents and instructions before the correction was received.

(b) Similarly, although the purchaser's solicitors' letter to the bank contained a wrong heading (referring to a different transaction), this did not delay the bank in its processing of the transaction, its officers not having noticed the error until it was pointed out by the purchaser's solicitors. A corrected letter was duly faxed to the bank and the error itself caused no delay.

79.The attack mounted by Mr Griffiths focussed on the 48 minutes or so which the bank's officers had taken to verify the documentation before issuing the cashier orders. He argued, on the basis of his "mechanics of payment" test, that all of those checks should have been done in advance, so that no allowance for the process of verification ought to be made in assessing "reasonable time" for the purposes of the implied term. As indicated above, that is an unacceptable approach. A purchaser cannot be expected to procure its mortgagee bank to authorise a draw down until after the relevant documents have been checked in accordance with the bank's usual procedures. It is quite unreasonable not to factor in a time allowance for this process.

80.The assessment of reasonable time also takes account of any terms of the contract of sale and purchase which may throw light on the question. In the present case, Clause 3 provides for completion within a three hour period, stipulating that completion was to take place "between the hours of 10:00 am and 1:00 pm" on 2 September. It is therefore a clause which envisages that the purchaser might wish to offer to complete by tendering the balance from 10:00 am onwards. Clause 3 forms part of the machinery of completion and is a powerful indication that the parties must have intended that any split cheque direction ought reasonably to be given in sufficient time to allow the parties the full benefit of the entire completion period.

81.In the present case, the vendor did not give the direction until more than one-third of the Clause 3 completion period had already gone by. The purchaser would inevitably require time after receipt of the direction to try to comply with it. Accordingly, giving the direction at 11:13 am necessarily deprived the purchaser of at least a very large proportion of the completion period that had been expressly agreed. This provides strong support for the conclusion that the time allowed by the vendor in this case was not reasonable.

82.Turning to causation, the purchaser's inability to tender completion by 1:00 pm was plainly due to the vendor's breach of the implied term. The direction faxed at 11:13 am simply did not leave enough time to enable the purchaser's solicitors to draw down the completion monies from the bank and to get the cashier orders and other documents to the vendor's solicitors in the ordinary course of business. Indeed, the purchaser's solicitors had been prepared to depart from their usual procedure of having the cashier orders collected, brought back to the office and checked before forwarding the same to the vendor's solicitors. They told the messenger to go straight to the latter's offices. But there was still not enough time to get there by 1:00 pm. As indicated above, various slips, such as that involving the wrong heading in the letter from the purchaser's solicitors to the bank, were not on the critical path to completion and did not cause any delays. The causal connection between breach and the lateness of the purchaser's tender is therefore clear.

The legal consequences

(i) Contract still alive

83.Although the vendor, in breach of its implied obligation, failed to give the split cheque direction in reasonable time to allow the purchaser to complete by 1:00 pm on 2 September, the contract remained on foot. Whether or not the implied term amounted to a condition of the contract so that, on its breach by the vendor, the purchaser could have elected to treat the contract as no longer binding, the purchaser did not do so. To the contrary, the purchaser decided to hold the vendor to the contract and did its best to complete by the stipulated time notwithstanding the shortness of time allowed.

84.This was a course that the purchaser was entitled to take. Even if the vendor's breach had amounted to an anticipatory breach of its obligation to complete under the contract, the purchaser elected to leave the contract on foot. The vendor remained bound by the contract. As Viscount Simon LC put it in Heyman v. Darwins Ltd [1942] AC 356, 361 :-

"If one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further, the other party has an option to the attitude he may take up. He may, notwithstanding the so-called repudiation, insist on holding his co-contractor to the bargain and continue to tender due performance on his part."

85.When an innocent party elects to keep a contract alive in this manner, it remains alive for the benefit of both parties: White and Carter (Councils) Ltd v. McGregor [1962] AC 413, 444. The innocent party is therefore bound to perform his obligations under the contract. In Fercometal SARL v. Mediterranean Shipping Co SA [1989] 1 AC 788 at 805, Lord Ackner stated the principle as follows :-

"When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete."

86.The purchaser in the present case therefore faces the potential argument that, notwithstanding the vendor's breach, the purchaser, having affirmed the contract, remained bound to complete no later than 1:00 pm on 2 September by virtue of Clause 3 and that, time being of the essence under Clause 12, the vendor became entitled to rescind and to forfeit the deposits since the deadline was missed. In other words, it could be said that having elected to affirm the contract, the purchaser subsequently failed to render due performance, justifying the vendor's decision to rescind the contract and to forfeit the deposits.

87.However, the statement of principle by Lord Ackner in Fercometal cited above was expressed in reference to an argument that, when one party (the guilty party) repudiates his obligations under a contract and the other party (the innocent party) does not accept the repudiation and affirms the continued existence of the contract, the innocent party "is absolved from tendering further performance under the contract while the repudiatory attitude is maintained." (at 801). His Lordship rejected that argument (at 805). But he was not then dealing with the effect of the guilty party's conduct on that party's entitlement to insist on legal rights to which, but for its conduct, it would have been entitled under the terms of the contract: see Foran v. Wight (1989) 168 CLR 385. Thus, in reference to that question, his Lordship went on to say (at 805) :-

"Of course, it is always open to A, who has refused to accept B's repudiation of the contract, and thereby kept the contract alive, to contend that in relation to a particular right or obligation under the contract, B is estopped from contending that he, B, is entitled to exercise that right or that he, A, has remained bound by that obligation. If B represents to A that he no longer intends to exercise that right or requires that obligation to be fulfilled by A and A acts upon that representation, then clearly B cannot be heard thereafter to say that he is entitled to exercise that right or that A is in breach of contract by not fulfilling that obligation."

88.In Heyman v. Darwins Ltd [1942] AC 356 Viscount Simon LC, while stressing that an unaccepted repudiation generally means that the contract remains alive for the benefit of both parties, said (at 361) :-

"In that event [ie, the contract being kept alive], the co-contractor has the opportunity of withdrawing from his false position, and even if he does not, may escape ultimate liability because of some supervening event not due to his own fault which excuses or puts an end to further performance." (Emphasis added)

89.But the fault of the guilty party may excuse the non-performance by the innocent party of an obligation that would otherwise be binding on him. Fry on Specific Performance (6th ed 1921 §941), citing Hotham v. East India Co (1787) 1 TR 638; 99 ER 1295, states that "non-performance by the plaintiff [is] excused when that has resulted from the neglect or default of the defendant."

90.In the present case, it is necessary to determine the effect of the vendor's failure to give the split cheque direction in reasonable time on the right to rescind the contract for the late tender of the purchase price - a right to which, but for that failure, the vendor would have been entitled by reason of clause 12 of the contract.

(ii) The "prevention principle"

91.The relevant circumstances are that the right to rescind asserted by the vendor rests on the lateness of the purchaser's tender of the balance, which lateness was the direct consequence of the vendor's own failure, in breach of the implied term, to give the split cheque direction in reasonable time. These facts bring into play rules derived from the long-established legal principle that a person is not permitted to take advantage of his own wrong.

92.A nineteenth century example of the principle's operation can be found in Rede v. Farr (1817) 6 M&S 121, where the parties entered into a 12 year lease that contained a proviso stating that if the rent were to be unpaid for 40 days after it was due :-

"...... then this demise, and every article, clause, and thing herein contained shall cease, determine and be utterly void to all intents and purposes, any thing herein contained to the contrary thereof in any wise notwithstanding" (at 122)

(a) On its face, the clause clearly made the lease void (without any re-entry by the landlord) where the lessee failed to pay rent as required. However, Lord Ellenborough CJ refused to give such effect to the clause stating :-

"In this case, as to this proviso, it would be contrary to an universal principle of law, that a party shall never take advantage of his own wrong, if we were to hold that a lease, which in terms is a lease for twelve years, should be a lease determinable at the will and pleasure of the lessee; and that a lessee by not paying his rent should be at liberty to say that the lease is void. On this principle, even if it were not borne out so strongly as it is by the current of authorities, it would be sufficient to hold that the lease was only void as against the lessee, not against the lessor." (at 124)

(b) Lord Ellenborough pointed out that the principle was recognized by Lord Coke (Co. Litt. 206b), adding :-

"If that be a principle of law, that a party shall not take advantage of his own wrong, then a lessee shall not avail himself of his own act to vacate his lease." (at 125)

93.In New Zealand Shipping Co Ltd v. Société des Ateliers et Chantiers de France [1919] AC 1, the principle was invoked but found inapplicable on the facts.

(a) The respondents were shipbuilders who had contracted to build a steamer for the appellants, to be delivered by a stipulated date but subject to certain time extensions. The contract also provided that in the event of France becoming engaged in a European war so as to delay delivery by 18 months from the agreed delivery date, the contract "shall become void and all money paid by the purchasers shall be repaid to them" with 5% interest. The steamer's construction was delayed by more than the 18 month period by France's continued engagement in the First World War. The builders therefore contended that the contract had become void. The appellants however argued that the relevant clause should be construed as making the contract voidable solely at their option and not void, as stated in the contract. An umpire found that the delays were due to causes beyond the respondents' control and that they were entitled to rely on the clause which deemed the contract void.

(b) This was upheld in the House of Lords. Citing inter alia Lord Ellenborough in Rede v. Farr, Lord Finlay, LC explained the principle in the following terms :-

"It has always been held that the lessee could not take advantage of his own act or default to avoid the lease, and the expression generally employed has been that such proviso makes the lease voidable by the lessor, or void at the option of the lessor. The decisions on the point are uniform, and are really illustrations of the very old principle laid down by Lord Coke (Co Litt 206b) that a man shall not be allowed to take advantage of a condition which he himself brought about. In the present case the builder was in no way responsible for the non-completion within eighteen months, and there is no reason why clause 12 should not be interpreted according to the natural meaning of the words so as to render the contract void." (at 8)

(c) Lord Atkinson explained the principle as follows :-

"It is undoubtedly competent for the two parties to a contract to stipulate by a clause in it that the contract shall be void upon the happening of an event over which neither of the parties shall have any control, cannot bring about, prevent or retard. . . . But if the stipulation be that the contract shall be void on the happening of an event which one or either of them can by his own act or omission bring about, then the party, who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong, in the one case directly, and in the other case indirectly in a roundabout way, but in either way putting an end to the contract.

The application to contracts such as these of the principle that a man shall not be permitted to take advantage of his own wrong thus necessarily leaves to the blameless party an option whether he will or will not insist on the stipulation that the contract shall be void on the happening of the named event. To deprive him of that option would be but to effectuate the purpose of the blameable party. When this option is left to the blameless party, it is said that the contract is voidable, but that is only another way of saying that the blameable party cannot himself have the contract made void, cannot force the other party to do so, and cannot deprive the latter of his right to do so." (at 9)

(iii) The need for a relevant breach

94.In refining the principle's operation in the contractual context, the authorities have stressed two limitations. First, it is necessary to show the relevant party's "wrong" involves his breach of the contract in respect of an obligation owed to the other party.

(a) Thus, in Luxor (Eastbourne) Ltd v. Cooper [1941] AC 108, the House of Lords held that where an estate agent was engaged on terms that he would be paid commission if he brought about a sale, no implied term existed inhibiting the principals from disposing of their property themselves or through other channels, thereby preventing the agent from earning commission.

(b) The point, as Lord Wright stressed, was that the owners were quite entitled to dispose of their property and, in doing so other than through the agent, breached no obligation owed to the agent :-

"...... when it is said in the present case that the appellants prevented the respondent from completing the contract it must be shown that the appellants broke some term of the contract between them and the respondent. The appellants cannot be held liable on the ground of prevention where all that happened was that they did, or omitted to do, something which as between themselves and the respondent they were free to do or omit to do. I question if there is any exception to this principle, but I am clear that there is no exception material to this case. Since, in my opinion there was no such implied term as the respondent claims, there can be no case of prevention rendering the appellants liable." (at 148-9)

(c) This requirement was also emphasised by Lord Diplock in Cheall v. Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 189, contrasting duties owed to the other party to the contract with duties owed to third persons :-

"To attract the principle, whether it be one of construction or one of law, that a party to a contract is not permitted to take advantage of his own breach of duty, the duty must be one that is owed to the other party under that contract; breach of a duty whether contractual or non-contractual owed to a stranger to the contract does not suffice."

(iv) The need for a causal connection

95.The second limitation on the operation of the principle is a causation requirement. It is necessary to show that the contractual rights or benefits which the party in question is seeking to assert or claim arise as a direct consequence of that party's prior breach. This requirement appears from some of the authorities quoted above. It has also been emphasised in certain decisions of the New South Wales Court of Appeal.

(a) Nina's Bar Bistro Pty Ltd v. MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613, was a case involving sale of a restaurant which was subject to the parties obtaining consent from the lessor for the restaurant's lease to be assigned to the purchaser, the parties being under an obligation to use their best endeavours to secure such consent. Such consent was not obtained and the purchaser was held to be in breach of the best endeavours obligation. The question was whether, in such circumstances, the purchaser was entitled to terminate the contract.

(b) Mahoney JA (giving the principal majority judgment) stated :-

"...... if non-compliance with such obligations is to take away the purchaser's right to terminate, it must be because there is a relationship between that non-compliance and the failure to settle on the due date or to obtain the lessor's consent." (at 620)

(c) On the facts, the court was not satisfied that the purchaser's failure to obtain consent of the lessors was causally related to such breach, the probability being that such consent would in any event not have been given. The purchaser was therefore held entitled to terminate notwithstanding its prior breach.

(d) The causation requirement was also stressed in Roadshow Entertainment Pty Ltd v. (ACN 053 006 269) Pty Ltd Receiver & Manager Appointed (formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462, 480; and in Kyrwood v. Drinkwater [2000] NSWCA 126 (25.8.00), §§154-155.

(v) How the principle is given effect

96.On the basis of the foregoing discussion, it seems clear, based on the underlying principle that a person is not permitted to take advantage of his own wrong, that a contractual party who is in breach of an obligation owed to the other party, will be prevented from asserting rights or claiming benefits which arise in consequence of his breach. The cases also show that where this "prevention principle" applies, it may be given effect in different ways.

97.In many cases, it will be appropriate to implement it as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages. Cases like Rede v. Farr and the New Zealand Shipping case, may be considered examples.

98.In other cases, where appropriate, the courts give effect to the principle as one of construction, holding that the contractual terms with which they are concerned must be construed by applying the principle as a canon or presumption of construction: see Lewison, The Interpretation of Contracts, 2nd Ed (Sweet & Maxwell), §6.08.

(a) Thus, Lord Diplock in Cheall v. Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 188-9, referred to the principle as :-

"...... the well known rule of construction that, except in the unlikely case that the contract contains clear express provisions to the contrary, it is to be presumed that it was not the intention of the parties that either party should be entitled to rely upon his own breaches of his primary obligations as bringing the contract to an end, i.e. as terminating any further primary obligations on his part then remaining unperformed. This rule of construction, which is paralleled by the rule of law that a contracting party cannot rely upon an event brought about by his own breach of contract as having terminated a contract by frustration, is often expressed in broad language as: 'A man cannot be permitted to take advantage of his own wrong.'"

(b) In Alghussein Establishment v. Eton College [1988] 1 WLR 587, Lord Jauncey of Tullichettle adopted a similar approach. His Lordship was there concerned with a badly drafted agreement, that is, with a case that lent itself to a construction exercise, holding that application of the principle was not excluded by any express words (at 595).

(c) It should however be noted that neither case limits the manner of giving effect to the underlying prevention principle to its implementation as a principle of construction. In Cheall, Lord Diplock referred to the "rule of construction" and the "parallel" substantive rule of law against allowing a party to rely on a self-induced frustration of a contract, as both coming within the orbit of the underlying principle. His Lordship also expressly left open the possibility that the principle might be treated as "one of construction or one of law" (at 189).

(d) Similarly, in Alghussein, while expressing a preference for treating the rule as one of construction, Lord Jauncey states :-

"...... that is not to say that there cannot be situations such as self-induced frustration, to which Lord Diplock referred in the Cheall case, where an absolute rule exists." (at 595)

99.Another possible manifestation of the underlying principle may be detected in cases where one party's conduct is the cause of the other party's failure to meet a condition precedent. Here, the principle has in some cases been given effect by deeming the condition to have been met.

(a) The authorities along this line commence with Mackay v. Dick (1881) 6 App Cas 251, a Scottish case involving a contract for the respondents' sale and delivery to the appellant of a digging machine, the sale being conditional on the machine passing certain trials. Proper trials were not held because the appellants, in breach of an implied obligation, failed to provide a suitable site for the trials. When the appellant refused to arrange further trials and refused payment for the machine, the respondents sued for the price. They succeeded. Lord Wright (with whom Lord Blackburn and Lord Selborne, LC agreed) stated :-

"[The Respondents] ...... have been thwarted in the attempt to fulfil that condition by the neglect or refusal of the Appellant to furnish the means of applying the stipulated test; and their failure being due to his fault, I am of opinion that, as in a question with him, they must be taken to have fulfilled the condition. The passage cited by Lord Shand from Bell's Principles to the effect that, 'If the debtor bound under a certain condition have impeded or prevented the event, it is held as accomplished. If the creditor had done all that he can to fulfil a condition which is incumbent on himself, it is held sufficient implement,' expresses a doctrine, borrowed from the civil law, which has long been recognised in the law of Scotland, and I think it ought to be applied to the present case." (at 270)

(b) As Lord Wright pointed out above, this was a Scottish case applying a principle borrowed from the civil law. Scott J explains in Thompson v. ASDA-MFI Plc [1988] 1 Ch 241, that the civil law principle in question is the "principle of fictional fulfilment of the condition precedent". It is, in other words, a rule which fictionally deems the condition satisfied as against the party whose default prevented its fulfilment. Scott J concluded that this was not a principle known to English law (at 266F).

(c) Nonetheless, as Scott J recognized, dicta of Lord Wright in Luxor (Eastbourne) Ltd v. Cooper [1941] AC 108, appear to give the Mackay v. Dick approach a more general application. Explaining that decision, his Lordship stated :-

"......This House held that the buyers had prevented fulfilment of the condition because they held that, it being the buyer's duty under the contract to provide the necessary facilities, he had failed to do so. Hence his default prevented the seller from satisfying the condition. The seller could therefore say that he had done all that lay on him to fulfil the condition and was to be taken to have implemented it. The test was only not satisfied because of the buyer's default." (at 148)

(d) Support for such an approach, treated as one justified by English authority, has developed in Australia. In Peter Turnbull & Co Pty Ltd v. Mundus Trading Co (Australasia) Pty Ltd (1953-54) 90 CLR 235 at 246, Dixon CJ stated :-

"Now long before the doctrine of anticipatory breach of contract was developed it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof: Hotham v East India Co (1787) 1 TR 638; 99 ER 1295."

(e) That decision was followed in Mahoney v. Lindsay (1981) 55 ALJR 118, where Gibbs J stated :-

"...... if one party to a contract prevents the other from fulfilling a condition of the contract, that is equivalent to performance by the latter." (at 119)

(f) These cases were not cited to Mr Mowbray QC who, in Micklefield v. SAC Technology Ltd [1990] 1 WLR 1002, declined to follow Thompson v. ASDA-MFI Plc, holding that the rule is one of construction only. It is unnecessary in the present case to decide whether the Mackay v. Dick approach in such cases is part of the common law in Hong Kong. The debate, however, provides an illustration of how the prevention principle is capable of being implemented in different ways in different cases.

(iv) Giving the principle effect in the present case

100.In deciding how the prevention principle is to be given effect in any particular case, it is necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract-breaker seeks to take on the basis of such consequences. The principle aims specifically to deny the contract-breaker those particular advantages.

101.There is no doubt that the prevention principle applies in the present case. The vendor was in breach of a duty owed to the purchaser to provide a split cheque direction a reasonable time before completion was due. This breach was the direct cause of the purchaser's failure to meet the deadline stipulated by Clause 3. It was in reliance on this late tender, a consequence of its own breach, that the vendor sought to invoke Clause 12, the time of the essence clause, as the basis for treating the contract as rescinded and for forfeiting the deposits.

102.The vendor's desired advantage was therefore its invocation of Clause 12 on the basis of the late tender caused by its breach. The prevention principle accordingly operates to prevent reliance on that clause. It follows that the purchaser's tender at 1:06 pm on 2 September is in law unaffected by any time of the essence provision in respect of the 1:00 pm deadline stipulated in Clause 3.

103.On this footing, by virtue of section 11 of the Law Amendment and Reform (Consolidation) Ordinance, Cap 23, the court applies the equitable rules on time stipulations and does not treat the purchaser's failure to meet the Clause 3 deadline as repudiatory of itself. Provided that the purchaser completes, or shows that he is ready and willing to complete, within a reasonable time after the stipulated deadline, equity is willing to grant specific performance and, as an incident thereof, to relieve against the consequences of failure to meet the strict time limit, where it can do so without injustice: Stickney v. Keeble [1915] AC 386, 415-6; Howe v. Smith (1884) 27 Ch D 89, 103; Rightside Properties Ltd v. Gray [1975] Ch 72, 83.

104.Tender of the balance six minutes after the time stipulated was obviously tender within a reasonable time. No injustice to the vendor arises. It follows that on the facts of the present case, in the events which took place, the vendor was not entitled to treat failure to meet the 1:00 pm deadline as repudiatory. The vendor was bound to complete at 1:06 pm when the balance of the purchase price was tendered. Its refusal to accept the tender was itself a repudiatory breach of the contract.

105.One may note that in the present case, the operation of the prevention principle is consistent with Clause 13(a) of the contract which expressly qualifies the vendor's right to rescind, to forfeit the deposits, etc, by reason of the purchaser's failure to complete on time. Such rights are only so exercisable if the purchaser's failure occurs "for any cause other than the default of the Vendor." The corollary is that if the purchaser's delay in completion is due to the default of the vendor the vendor is not entitled to treat the contract as repudiated or to take any consequential steps.

106.The appeal by the vendor must therefore be dismissed. Although this conclusion rests on grounds different from those adopted by the Court of Appeal, there is no reason to interfere with that court's orders in the purchaser's favour for the return of the deposits, damages, interest and costs.

107.I would deal with the costs in this Court in the manner proposed by Mr Justice Bokhary PJ.

Mr Justice Nazareth NPJ:

108.I agree with the judgment of Mr Justice Ribeiro PJ.

Sir Gerard Brennan NPJ:

109.I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ:

110.We unanimously dismiss this appeal and affirm the Court of Appeal's orders, including those as to the costs in the courts below. As to the costs in this Court, we make an order nisi for costs in favour of the Purchaser and the Solicitors against the Confirmor, such order nisi to become absolute within 21 days if no written application for some other order as to costs is made within that time. As to the position if such an application is made, we order that the matter be dealt with on written submissions for which procedural directions should be sought from the Registrar if the parties are unable to agree on procedural matters in that regard.

Representation:

Mr John Griffiths SC and Mr Benjamin Chain (instructed by Messrs Iu, Lai & Li) for the appellant

Mr Edward Chan SC and Mr Wallace Cheung (instructed by Messrs Bosco Tso & Partners) for the 1st respondent

Mr Joseph Fok SC and Mr Russell Coleman (instructed by Messrs Deacons) for the 2nd respondent

Mr Kenneth CK Chow for the Official Receiver