Kong Yik Hang v. Polypak Ltd

HCA001884A/1973

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO. 1884 OF 1973

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Coram: Li, J.

Date of Judgment:

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JUDGMENT

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1. This is an action by Kong Yik Hang (hereinafter referred to as the "plaintiff") against the Polypak Limited (hereinafter referred to as the "defendant") for the return of a deposit and expenses involved for breach of contract for the sale and purchase of property. The action is met with a counterclaim by the defendant for forfeiture of the deposit and for damages and interests on the ground that the breach of contract was committed by the plaintiff. By a written agreement dated the 31st March 1973 (Exh. A(2)) the plaintiff and the defendant company agreed that the plaintiff would purchase and the defendant would sell the right title and interest to and in all those 60 equal undivided 730th parts or shares of and in all that piece or parcel of ground registered in the Land Office as the remaining portion of New Kowloon Inland Lot No. 4391 and of and in the buildings there on known as the Kai Tak Factory Building Stage II together with the right to the exclusive use, occupation and enjoyment of all that the whole of the fourth floor of the said building (hereinafter referred to as the "premises") for the sum of $1,583,550.00. A deposit of $150,000.00 had been paid on the 5th March. It was also agreed that the date for completion was on the 15th May 1973, that time was of essence of the contract and that should the plaintiff fail to pay any part of the balance of the purchase price the defendant would be entitled to forfeit the deposit.

2. Both parties acted through the same firm of solicitors namely, C.Y. Kwan & Co. On the 8th May 1973, at the instance of the plaintiff, C.Y. Kwan & Co. wrote to the defendant in the following terms (Exh. A(5)) which reads:

"With reference to the Agreement of Sale and Purchase in respect of the above property dated the 31st day of March 1973 made between your goodselves as the Vendor of the one part and Mr. Kong Yik Hang as the Purchaser of the other part, we are writing to remind you that the date of completion of the sale and purchase of the said property is on 15th day of May 1973 and that clause 16 of the said Agreement provides as follows:-

On the 15th May 1973 the defendant company was not even present by any of its officers, but instead wrote to C.Y. Kwan in the following terms (Exh. A(9)) which says:

3. The plaintiff was not given vacant possession on the 15th May 1973. On the 16th May the plaintiff through his own solicitors, Messrs. Ng and Yung, wrote to C.Y. Kwan & Co. as follows (Exh. A(10)):

The letter was forwarded to the defendant in due course who replied in terms of their letter dated the 18th May 1973 in Exh. A(11) which roads:

"We are in receipt of your letter of 17th May on the captioned subject, your Ref. No. 67494/C/HLS/AKW, enclosing a copy letter from Messrs. Ng & Yung to you dated 16th May, 1973. ...(illegible) the said letter from Messrs. Ng & Yung we no ...(illegible) that unless we vacate and deliver up vacant possession of the captioned premises to the Purchaser, Mr. Kong Yik Hang, at or before 12:00 noon on 19th May, 1973, Mr. Kong will be obliged to rescind the relative Sale and Purchase Agreement and we shall be required to refund to Mr. Kong the deposit of $150,000.00. In reply, we wish to advise you that we will deliver up vacant possession of the said premises within the time-limit set, i.e., before 12:00 noon on 19th May, 1973, on condition that the Purchaser pays you, for our account, the entire balance of the purchase price amounting to $1,583,550.00 in cash upon signing the Sale and Purchase Agreement at your office. Should the Purchaser fail to pay this entire balance to you in cash, we would consider the deposit of $150,000.00 as having been forfeited by the Purchaser."

4. On the 19th May 1973 the plaintiff went to C.Y. Kwan & Co. and by about 11.30 a.m. had put C.Y. Kwan in funds to the extent of $1,000,000.00 for the balance of the purchase price. He was to pay the rest of the purchase price of $433,550.00 by cheque. But on the advice of an articled clerk, Mr. Ho Lai Sheung, in C.Y. Kwan & Co. the plaintiff went to Wing Lung Bank Limited to obtain a cashier order of the said amount. On his return to C.Y. Kwan & Co. it was found that the defendant still had some goods and machine parts in the suit premises. There and then the plaintiff rescinded the contract and refused to complete. These aforesaid facts are not in dispute and are really common grounds between the parties.

5. The plaintiff's case is that the defendant company clearly committed a breach of contract and is liable to return the deposit and to pay for damages in the form of expenses incurred in preparing the legal documents for the sale and purchase. The defence case is that the plaintiff had not put C.Y. Kwan & Co. in funds for the whole amount of the balance to complete at noon on the 19th May 1973, and further that at the material time the defendant had largely vacated the premises leaving only partially finished goods and machine parts occupying about one-sixth of the floor area in the premises of a total area of 13,770 sq. ft. In any event all the goods were removed by 7.30 p.m. of the same day and that since the 21st May 1973 the defendant had repeatedly requested the plaintiff to take vacant possession. In the circumstances the do minimis rule should apply and alternatively in his letter dated 16th May 1973 the plaintiff had waived the condition that time was of essense and had not given a reasonable time to the defendant to complete by insisting on completion at noon on 19th May 1973. The circumstances which led to the plaintiff's final decision to rescind the contract on 19th May are in dispute, so is the time of the plaintiff's ability to pay the purchase price.

6. Having heard the evidence of all the witnesses called by both parties I have come to the conclusion and find the following facts. Some time in February and March in 1973 the plaintiff negotiated with one Mr. Tai of the defendant regarding the purchase of the premises. Verbally they agreed that the completion date and vacant possession to be the 30th April 1973. However, on 5th March before the deposit was paid by the plaintiff at the premises of C.Y. Kwan & Co. Mr. Tai of the defendant realised that the defendant would not be able to deliver vacant possession on 30th April and therefore asked that the date for completion and delivery of vacant possession should be on the 15th May 1973. At that time the plaintiff indicated that he had ordered certain machinery and that certain goods might have to be moved to the premises early in May or by the end of April. The plaintiff requested that should it be necessary the defendant would accommodate the plaintiff by allowing the removal of some of his goods or machines to the premises. To which request Mr. Tai of the defendant company agreed. When early in May the plaintiff intended to move some of his property to the premises, that was refused by the defendant. That prompted the letter (Exh. A(5)) from C.Y. Kwan & Co. to the defendant at the instance of the plaintiff. Pausing at this stage the date of the 30th April should be immaterial since the parties have agreed to reduce their verbal agreement into a written agreement dated the 31st March 1973. The relevant date for all intents and purposes should be the 15th May 1973. I find these facts mainly because it is essential in a case of this nature to look into the conduct of both parties. As it was said earlier, on the 15th May 1973 none of the officers of the defendant turned up at C.Y. Kwan & Co. for the purposes of completion. Instead a letter dated the 15th May 1973 (Exh. A(9)) was delivered to C.Y. Kwan & Co. asking for a postponement of one month for completion. The defendant never got in touch directly with the plaintiff. However, on the 10th May 1973 the architect responsible for the construction of Nan Sing Factory Building, where the defendant was to move, wrote to C.Y. Kwan & Co. (Exh. A(6)) in these terms:

"Further to our telephone discussion this afternoon, we hereby inform you that the new building has been completed on 19th April 1973 and occupation permit to the above will be issued sometimes next week."

These messages were not conveyed to the plaintiff until nearly five o'clock on the 15th May 1973 by Mr. Ho of C.Y. Kwan & Co. Pausing at this stage again I find that this probably was the cause that prompted the plaintiff to offer a new date of completion at noon on the 19th May 1973 to which the defendant agreed expressly by their letter in reply in Exh. A(11). The terms of the letter Exh. A(11) are, to say the least, vindictive, in that it demanded cash payment "upon the signing of the sale and purchase agreement at the office of C.Y. Kwan & Co." This was so despite the fact that Mr. Wong of the defendant company said in the witness box that he in fact did not expect cash.

7. Resuming my finding of fact I find that the plaintiff went to C.Y. Kwan & Co. and was told at about 11.30 a.m. that he should go to Wing Lung Bank Ltd. to obtain a cashier order for the balance of the purchase price. Even at that time no officer of the defendant had attended C.Y. Kwan & Co. The plaintiff was told that the cashier order would be acceptable only after Mr. Ho Lai Sheung had spoken to Mr. Wong of the defendant on the telephone. The plaintiff went to Wing Lung Bank, obtained a cashier order and returned to C.Y. Kwan & Co. at the time about 10 or 15 minutes past noon. By that time Mr. Wong of the defendant had arrived. Mr. Wong then produced the key to the premises and asked the plaintiff to complete the ...(illegible) However, the ...(illegible) and make sure that the premises were completely vacant. He sent his fokis to have a look there at about noon or shortly after noon. The fokis found that the premises was still occupied by machines and goods to the extent of one-third of the total floor area. Various witnesses of the defendant have testified that at about noon on the 19th May all that was left in the premises was a minor portion of machine parts and partially finished goods. One said that it was about 700 sq. ft., another would say that only 600 sq. ft. or less. However, I find all these are exaggerations because such evidence is clearly inconsistent with the pleadings that at about noon one-sixth of the total floor area was occupied. In this issue I find as a fact that at least one-sixth, and probably more of the floor area of the premises was covered by the defendant's goods and machines or machine parts. The plaintiff insisted that the premises should be completely vacant before he could sign for completion. The plaintiff even suggested clarification by an immediate joint visit with Mr. Wong to see if the premises were completely vacant. This was flatly refused by Mr. Wong of the defendant who insisted on the signing of the completion at once by acceptance of the key on the part of the plaintiff and that vacant possession would be delivered a few hours after. The plaintiff refused to accept such a proposition and there and then rescinded the contract and left C.Y. Kwan & Co. There is an allegation on the part of the defendant to the effect that the plaintiff did mention to Mr. Wong of the defendant that it would not matter if there were not too many goods on the premises. However, I find that the plaintiff never suggested that he would not mind if there were not too many goods on the premises because it would be inconsistent with the conduct of the plaintiff who at all times insisted on vacant possession at noon. Further, such a remark was not heard by Mr. Ho Lai Sheung when he gave evidence on this point.

8. I also find as a fact that the plaintiff did order machines to be delivered to the premises on or before the 20th May 1973. Such machines could not be moved to the premises because the defendant was still in occupation by noon on the 19th May. I am convinced beyond doubt that at that time there was still quite a substantial portion of the premises being occupied by the goods and machine parts of the defendant. I find this despite the evidence being given by the defence witness, Mr. Man Yun Fat, the sole proprieter of Man Kee Transportation Co. who was responsible for removing the goods for the defendant from the premises on the 18th and 19th. He said that by the evening of the 18th he had removed practically all the goods down to the ground floor beside the lift at the entrance of the building on the ground floor. Another witness for the defence, Mr. Chan Kwok On, the sole proprieter of Chan Kwok Kee Delivery Service, who joined in the removal, said that on the 19th in the early morning when he went to the premises to remove goods and machines he did not see those goods stacked beside the lift on the ground floor. Apart from this conflict of evidence I find it most improbable and most unlikely that the defendant would leave his goods beside the lift on the ground floor over night in a factory building. It is also a fact that on the 21st May 1973 the defendant did write to the plaintiff asking him to complete. However, by that time the plaintiff replied that they had rescinded the contract on the 19th, and refused to complete.

9. On these facts learned counsel for the defendant contends that the de minimis rule should apply in that there was only a minimal amount of goods left on the promises by noon on the 19th May, and that in any event vacant possession could have been rendered in the evening on the same day. As an alternative it is alleged that by writing the letter extending the time to 19th May the plaintiff had exercised a waiver and that no reasonable time had been given to the defendant. It is further contended that the element of time for delivering vacant possession was not an essential term of the contract having regard to the fact that it is in fact a purchase and sale of a lease term of some years.

10. A great number of authorities have been cited in support of the de minimis rule and other propositions some of which are not applicable to the facts of the present case. However, I shall consider those which are applicable. I shall first consider the de minimis rule. I find that even one-sixth of a total area of 13,770 sq. ft. is not so minimal as to say that vacant possession had been offered to the plaintiff at noon on the 19th May. The case of Whitcher v. Hall⁽¹⁾ is clearly not applicable. That was a case on the liability of a surety. It was a letting of thirty cows to be milked at £710s. per annum. For a certain period of time only twenty-seven cows were supplied to be milked. In a minority judgment Littledale J. found that the contract has been substantially performed and the contract was severable and therefore the person who lot the cow could charge pro rata. At p.277 he said:

"I consider the original agreement not an entire, but a divisible agreement; and that although part of it has not been performed, the plaintiff is entitled to recover for that part which has been performed".

The present case is one of vacant possession, either it was completely vacant or it was not vacant, it cannot be said that the partly vacant possession amounted to vacant possession. It is not a matter that only a few articles or some debris were left behind. About one-sixth of the total area was still occupied by machine parts and goods at the material time. In this connection I might conveniently deal with the case as to the meaning of vacant possession and also on the point whether vacant possession could be an essential term of the contract. In the case of Cumberland Consolidated Holdings Ltd. v. Ireland⁽²⁾ it was held that the defendant who sold the property and loft chattels of his own on the property sold by him to the extent of depriving the purchaser of the physical enjoyment of part of the property had failed to give vacant possession. It is no answer to the vendor to say that he has abandoned his ownership of the chattel on completion. At p.270 the learned Master of the Rolls said this:

"Subject to the rule de minimis a vendor who leaves property of his own on the premises on completion cannot, in our opinion, be said to give vacant possession, since by doing so he is claiming a right to use the premises for his own purposes, namely, as a place of deposit for his own goods inconsistent with the right which the purchaser has on completion to undisturbed enjoyment."

Later he said:

""The phrase 'vacant possession' is no doubt generally used in order to make it clear that what is being sold is not an interest in a reversion. But it is not confined to this. Occupation by a person having no claim of right prevents the giving of 'vacant possession,' and it is the duty of the vendor to eject such a person before completion. See Royal Bristol Permanent Society v. Bomash (1887) 35 Ch. D. 390, 395 and Engell v. Fitch (1869) L.R. 4 Q.B. 659. The reason for this, it appears to us, is that the right to actual unimpeded physical enjoyment is comprised in the right to vacant possession. We cannot see why the existence of a physical impediment to such enjoyment to which a purchaser does not expressly or impliedly consent to submit should stand in a different position to an impediment caused by the presence of a trespasser. It is true that in each case the purchaser obtains the right to possession in law, notwithstanding the presence of impediment. But it appears to us that what he bargains for is not merely the right in law, but the power in fact to exercise the right. When we speak of a physical impediment we do not mean that any physical impediment will do. It must be an impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property."

In this case I find that not only vacant possession is an essential term of the contract but also that the occupation of one-sixth or more of the premises is substantial enough to prevent vacant possession being rendered.

11. It is further contended that the difference of a few hours lapse was minimal in time. However, on the facts of this case the contract was rescinded at the time when the plaintiff left the C.Y. Kwan & Co. soon after noon on the 19th May. This course was taken by the plaintiff because he had his distrust of the defendant in honouring its promise. I find that the plaintiff was justified in so doing in view of the conduct of the defendant. First of all the defendant failed to honour their verbal agreement to accommodate the plaintiff early in May. By 10th May the defendant knew that an occupation permit to the new premises in Nan Sing Building to which they were going to move would be forthcoming within a week, namely by the 17th May. Nonetheless the defendant never saw fit to get in touch with the plaintiff directly but wrote instead to C.Y. Kwan & Co. Such message was never conveyed to the plaintiff until late on 15th May when the defendant completely ignored their obligation to complete on that day. Again, knowing full well that one week was all the time that they required to vacate the premises the defendant was greedy enough to ask for one whole month of extension. Then on receipt of the plaintiff's letter dated 16th May 1973 the defendant was vindictive enough in their letter to demand payment in cash. The sum in cash was over $1 million. I can only find that the whole object of this demand was to put every obstacle in the way of the plaintiff so that the defendant could delay the time for completion. There is evidence of a defence witness that production in the premises on the part of the defendant was in full swing until approximately 3 p.m. on 17th May. In other words at all times the defendant wanted to have its own way without any due consideration for the other party.

12. Having regard to the circumstances I find that there is no reason why the plaintiff should trust the defendant any more by signing the completion without obtaining vacant possession at the material time on 19th May. That the premises were in fact cleared of the defendant's goods at about 7.00 p.m. on the 19th is immaterial. At the material time Mr. Wong asked for a few hours' grace and that the plaintiff should complete first. There was then no guarantee that the premises would be vacant in a few hours. By 21st May the plaintiff had already rescinded the contract and he was therefore not obliged to accept the defendant's new offer. In this connection I do not rely on the principle as pronounced by Lord Jenkins in the case of Aberfoyle Plantations Ltd. v. Cheng⁽³⁾.

13. As regards the defence of waiver it was argued in two ways. First of all it was alleged that the plaintiff on 19th May said that he would not mind if there were too many goods still left in the premises. I have already found as a fact that the plaintiff did not say this and therefore this contention must fail. It is also alleged that by his letter dated the 16th May extending the time for completion to noon the 19th May the plaintiff had waived that the completion should be on the 15th May. This may well be so. However, the plaintiff wrote on the 16th May in the clearest possible term that he would be obliged to rescind the contract unless vacant possession was rendered on the 19th May at noon. To this the defendant replied in its letter that they agreed to this time and date. Counsel for the defence cites the case of Parkins v. Thorold⁽⁴⁾ and contends that once the original date of completion was waived then the plaintiff was obliged to give a reasonable time for completion and that to offer to complete on the 19th May was not a reasonable time. However, the present case is clearly distinguishable from that of Parkins v. Thorold. In that case time was not made the essence originally in that contract. Before the completion date took place, namely the 25th October 1850, the purchaser's solicitor wrote to the vendor's solicitor extending the time without further agreement to 5th November 1850. The reason given by the learned Master of the Rolls as to the reasonableness of time was reported at p.65 in which he said:

"Having come to this conclusion on the first question, it may be superfluous to express my opinion on the next subordinate point, which would have arisen had I come to an opposite conclusion; but as it may have some bearing on the subsequent part of this case, I think it is desirable to do so. I am of opinion then, that if time had been originally of the essence of this contract, the Defendant has waived that part of it. The time mentioned in the contract of the completion of the purchase is the 25th of October, 1850, but the Defendant, by his solicitor, on the 21st of October, 1850, extends that time till the 5th of November, 1850. If time was of essence of the contract, the contract was at an end, if the title had not been made out on or before the 25th of October 1850, but after that letter, the Defendant would, beyond all question, have been compellable in equity to complete the purchase, if the title had been completed by the 1st November 1850, or any other day before the 5th November 1850. It appears to me, therefore, that, after writing this letter, the Defendant abandoned his right to insist on the completion of the title on the 25th of October, 1850, which was the day specified in the contract."

Then he said:

The learned Master of the Rolls referred to the facts in the case and said:

"In none of the reported cases can I discover any such time being treated as sufficient for such or a similar purpose. If time was not of the essence of the contract, as for the purpose of considering this question I assume that it was not, it is plain, that this notice must be treated as given pending the discussion on the title, and having no reference to the time mentioned in the contract. The Defendant knew the contents of it; the comparison of the copy with the original when produced was all that was required; the draft conveyance was to be prepared and engrossed, which was to be done by the purchaser; and with the strongest desire and intention, on my part, not to weaken the tendency of the modern decisions, which have, in my opinion rightly, held a stricter rule on the subject of time than the earlier ones, I cannot come to the conclusion that this was a reasonable or sufficient time for the purpose specified in the notice".

But the fundamental distinction in this case is that the defendant agreed to the time at noon on 19th May and therefore that is what makes it a reasonable time. In this connection, perhaps, I should also mention the case of Charles Rickards Ltd. v. Oppenhaim⁽⁵⁾. In his judgment Denning, L.J. (as he then was) said this:

"In my opinion, however, the words of Lord Parker in Stickney v. Kecble [1915] A.C., 386, 419 apply to such a case as the present just as much as they do to a contract for the sale of land. He said that 'in considering whether the time so limited is a reasonable time the court will consider all the circumstances of the case. No doubt what remains to be done at the date of the notice is of importance, but it is by no means the only relevant fact. The fact that the purchaser has continually been pressing for completion, or has before given similar notices which he has waived, or that it is specially important to him to obtain early completion, are equally relevant facts' - to which I would add, in the present case, the fact that the original contract made time of the essence of the contract. In this particular case, ...(illegible) only did the defendant press continually for delivery, not only was he given premises of speedy delivery, but on the very day before he gave this notice he was told by the works manager in charge of the work that it would be ready within two weeks. Then he gave a four weeks' notice. The judge found that it was a reasonable notice, and, in my judgment, there is no ground on which this court could in any way differ from that finding. The reasonableness of the time fixed by the notice must, of course, be judged at the time at which it is given. It cannot be held to be a bad notice because, after it is given, the suppliers find themselves in unanticipated difficulties in making delivery."

Here in this case the defendant agreed to the specified extended time and kept their production in full swing up to the afternoon of the 17th May without any intention of moving out until the last moment. That was why the defendant had not sufficient time to move out to meet the dead line. It is quite clear on the authorities of the Rickards ⁽⁵⁾ case that agreement between the parties as to the time is of importance.

14. Learned counsel for the defence also contends that to allow the plaintiff to recover the deposit is almost allowing a penalty. He cites the case In re Dagenham Dock Co.⁽⁶⁾. That case was approved and adopted in John H. Kilmer v. British Columbia Orchard Lands Ltd.⁽⁷⁾. But in both of these cases the point in issue was whether a vendor was entitled to forfeit the part payment made by the purchaser who failed to follow up the instalment payment in time. It was held in both cases that to forfeit the previous part payments was penalty and not liquidated damages. Both cases are quite different from the present case where the purchaser wants to recover the deposit that had been paid due to a breach of contract on the part of the vendor who failed to complete in time. If that can be regarded as demanding a penalty then no vendor need pay any attention to the time for completion in any sales contract. Nor can I accept Mr. Bernacchi's contention that time is not an essential term in this contract in this case where the parties agree that time is of essence of the contract and the extension of time is agreed upon again by both parties and confirmed by letters in writing. They must abide by the express term. The plaintiff had ordered machines to be moved to the premises on or before the 20th May. There is evidence, which I accept, that the machines ordered by the plaintiff were ready for delivery and to be moved into the premises on the 19th May at noon. It is not the function of this court to rewrite the contract for the parties.

15. It is further contended that both parties are at fault in that the plaintiff was also late in tendering his payment. There is evidence that the plaintiff returned with the cashier order to C.Y. Kwan & Co. at about ten or fifteen minutes past noon on the 19th May. However, Mr. Wong of the defendant did not object at the time. Instead, he produced a key and asked for completion. If the de minimis rule is to be applied I would have applied it in favour of the plaintiff for being ten to fifteen minutes late. However, that is not necessary. Having regard to the content of the letter in Exh. A(11) it is quite obvious that the defendant was obliged to deliver vacant possession first and that the plaintiff was obliged to pay on signing the Deed of Assignment in accordance with the Sale and Purchase Agreement. The defendant at noon or soon after was in no position to deliver vacant possession. The antecedent breach was committed by the defendant.

16. For this reason all the authorities cited on the proposition that both parties are at fault are not relevant to the issue. I need not concern myself with the measure of damages arising from the counterclaim since I have found that the defendant has committed a breach of contract.

17. In the circumstances I give judgment to the plaintiff for the rescission of the said agreement, recovery of the deposit of $150,000.00 together with interests thereon at the rate of 8% per annum from the date of payment; the sum of $3,599 as payment of deposit which is evidenced by an agreed document with costs. The counterclaim is dismissed with costs. I find that this is a proper case for me to declare that the plaintiff is entitled to a lien on the property in respect of the sums of money payable to him.

Representation:

Mr. Zimmern, Q.C., Mr. Sakharni (Ng & Yung) for the plaintiff.

Mr. Bernacchi, Q.C., Mr. C. Ching, Q.C. (H.H. Lau & W.S. Lo) for the defendant.

(1) Vol. 5 Barnewell & Cresswell's Reperts 269

(2) 1946 K.B. 264

(3) 1960 A.C. 115 at 124

(4) 16 Beavens Rep. 59

(5) [1950] 1 K.B. 616

(6) 8 Ch. App. 1022

(7) 1913 A.C. 319