Sun Kay & Co Ltd v. Li Fuk Chu

HCA001365/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1365 OF 1968

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Coram: Huggins, J.

Date of Judgment: 24 June 1969

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JUDGMENT

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Huggins, J:

This is a summons for judgment under 0.14. The plaintiffs claim possession of property which is the subject matter of a contract of sale between them and the defendant. They claim also an injunction, a declaration that the rights of the defendant under the contract have been totally extinguished and two sums of money which it is said are due and payable under the terms of the contract.

1. The Agreement, which has been exhibited, was dated 10th July, 1967 and it was for the sale of the property at a price of $990,000. In a Schedule to the Agreement were set out the various sums which were to be paid as "purchase money". The price was to be paid in four instalments but there were alternative arrangements under which the purchaser could pay the last of these main instalments together with interest over a considerable period of time. The Agreement provided that pending completion, which would be upon payment of the final instalment, it should be open to the vendor to allow the purchaser into possession and Clause 20 sets out the terms upon which the purchaser should then hold. The clause says the vendor "may" let the purchaser occupy the premises, but reading this Agreement as a whole I agree with counsel for the defendant that the intention obviously was that the vendor should do so and that this was mandatory and not merely permissive. There was then provision that if the deposit or any of the instalments should not be paid on or before the dates specified in the Schedule the purchaser should vacate the premises immediately on demand and the deposit and instalments and other sums already paid should be forfeited in accordance with Clause 12, to which I shall refer in a moment. It is specially provided that "the Purchaser shall occupy the said premises as a licensee only of the Vendor and shall not be entitled to let, part with possession of or otherwise deal with the said premises until the purchase money has been fully paid and such occupation shall not create any tenancy". Provision is then made for the payment of outgoings by the purchaser should he move into possession and he is to pay off the appropriate proportion of the rates, property tax, Crown rent and expenses and maintenance and upkeep of the building. Clause 12 is a general provision covering the event of a failure on the part of the purchaser to observe or comply with any of the conditions or to make punctual payment of instalments stipulated in the Schedule or any other moneys, and these sums were to be absolutely forfeited to the vendor with liberty to the vendor to rescind the sale and re-sell the property if he thought fit. Finally it must be mentioned that time was declared to be of the essence of the contract.

2. In the beginning all went well but in August of 1968 the solicitors for the plaintiffs wrote a first letter complaining that certain sums had not been paid and demanding payment. No reply was received to that letter from the defendant and on 24th September 1968 a second letter was sent in terms rather more specific than previously. The solicitors then warned that in default of the defendant's making the instalment payments previously referred to in the correspondence their clients would no longer permit him to remain in occupation of the premises and gave notice that they had received instructions to determine the licence and they required the defendant upon the expiration of 14 days from receipt of the letter to quit and yield up possession. They also threatened legal proceedings.

3. I understand that there were certain without prejudice negotiations between 24th September and 4th November, on which date the solicitors for the defendant tendered the whole of the amount which they said was then due. The covering letter said that in the circumstances "the court would almost undoubtedly give relief against forfeiture to our client should this become necessary so that we hope that your client accepts this tender to save costs and time" - and I should mention that that letter followed close upon the heels of the writ which had been issued by the plaintiffs on 24th October. It is said that the passage which I have just referred to was not in any way an admission that the plaintiffs were entitled to a forfeiture and was merely a statement of the law which would apply if they were. I confess that I do not read the letter in that way and certainly the plaintiffs and their advisers have not read it in that way, so the position seems to me to be that the defendant has by no means been clear in coming forward and making his stand upon plain ground. (I think the "without prejudice" correspondence actually followed this letter but that is of no consequence). After the arrears had been tendered the defendant's solicitors continued to tender each month the payments which fell due under the Schedule.

4. Now, as I understand it, the first argument on behalf of the defendant is that upon the true construction of this Agreement, which on the face of it would suggest an intention not to create a tenancy if the purchaser were allowed into possession prior to completion, it did in fact create a tenancy and it is further said that the tenancy which arose upon the defendant's taking possession has never been determined. In my view that is not a correct reading of this Agreement. It is true that the courts will not be bound by the label which the parties put on a document but if two parties expressly say that they have no intention of creating a tenancy and that the occupation of one of them is to be as a licensee it does require strong contra-indication before the court will come to the conclusion that there is in fact a tenancy. The contra-indications which are relied upon here are the provision that the purchaser shall not be entitled to let or part with possession of the premises and the demand to the defendant to "yield up possession". Then it is said that the terms of any occupation by the purchaser, which included, as I have said, payment of all outgoings in respect of Crown rent, rates, taxes and maintenance, were inconsistent with anything but a tenancy. If the occupier were not also purchaser I would agree, but it seems to me not unreasonable that a purchaser who is being given extended terms for payment should have to pay all the outgoings, which he would have had to pay if he had been purchasing forthwith, and at the same time to take nothing more than a licence pending completion. Accordingly the argument carries much less force in this case than it would in a case where the occupier had no equitable interest in the premises in addition to the interest which gave him the right of occupation. Again, it is argued that on the date of completion the purchaser could be required by the vendors to enter into a deed of mutual covenant the terms of which were clearly based upon exclusive possession. In reply to the obvious answer that under the terms of the Agreement the deed of mutual covenant did not come into the picture at all until the date of completion counsel submits that it cannot really have been contemplated that in a case where completion was not expected for some 10 years the purchaser should be allowed into occupation without being bound by a deed defining his rights and obligations vis-à-vis the owners of other premises in the building. Whether the parties contemplated that or hot no provision has apparently been made in the Agreement to govern the period prior to completion and in my view the terms of the intended deed of mutual covenant are of no assistance in deciding the issues before me. Finally it is said that the agreement of sale and purchase was to be registered at the Land Office and that that fact indicated the creation of something more than a licence. I do not understand that contention: the deed was properly registrable whatever the nature of the rights created by entry into occupation under Clause 20.

5. In my view the defendant has no arguable case that he is a tenant.

6. It is said that even if the defendant is a licensee he is a licensee with an interest whose licence cannot be terminated, and counsel relies upon Errington v. Errington⁽¹⁾. That is manifestly a very different case. Here the rights of the parties are governed by the express terms of the contract and the contract provides that in the events which have happened the vendors shall be entitled to demand the return of the premises.

7. The only point which has given me any anxiety at all arises from a proposed claim for relief. The defendant fell into arrears after paying $219,664, which included some interest. His story is that he held back the instalments which then fell due because on going into occupation (according to the evidence, on or about 23rd August 1968) he discovered that the building which had been erected by the vendors was not in accordance with the recitals in the contract for sale and purchase. By that time he was already in arrears to the extent of $76,581. There is nothing in the correspondence to suggest that he made any complaint of this kind prior to the letter in which the solicitors for the vendors demanded possession, but three days later he took out a writ claiming damages for breach of contract. Not until 29th March 1969 did the defendant pay into court the arrears claimed in the writ, together with sums due thereafter up to and including 1st April. He did not pay interest on the instalments (which, of course, already included interest on the basic purchase price) but he filed an affidavit indicating his willingness to pay such interest. Counsel for the defendant submits that the forfeiture was in the nature of a penalty and that the defendant is entitled to be relieved on payment of the arrears of the purchase money with interest: Kilmer v. British Columbia Orchard Lands Ltd.⁽²⁾. Counsel for the plaintiffs concedes that the court has jurisdiction to to grant relief (Stockloser v. Johnson⁽³⁾) but submits that it will not do so merely because tender has been made if the defendant has acted unconscionably. He further submits that the defendant brought his action with the deliberate intention of delaying and obstructing the plaintiffs, while the plaintiffs, on their side, are entirely blameless.

8. Upon the authorities it seems to me that unless there is evidence of serious misconduct on the part of the defendant over and above the failure to pay on time he is entitled to some relief. While I have grave doubts whether there is evidence here of such serious misconduct that is not, I think, an issue upon which I am required to rule in deciding the present application. What is material is to consider what precisely is the nature of the relief to which the defendant may be entitled. The plaintiffs are asking for two main remedies: first they claim to have the land free of all rights previously vested in the defendant and secondly they say they are entitled to retain all the moneys paid or payable up to the date of rescission. It follows that what the defendant is proposing to seek from the court is specific performance of the contract for the sale of the land and relief from forfeiture of the moneys paid or payable. I have no doubt that the term of the contract which gives the plaintiffs the right to forfeit moneys paid or payable before a rescission creates a penalty and that relief ought to be granted on terms unless (as I have already said) the plaintiffs can establish misconduct. But it does not necessarily follow that the defendant would be entitled to relief in the nature of specific performance. Time was of the essence of the contract and unless the plaintiffs have waived that term relief cannot be granted without in effect re-writing the contract. Counsel for the defendant has not sought to suggest that there has been waiver of the provision that time was to be of the essence and there is nothing in the affidavits before me upon which to base an allegation of waiver, such as there was in Kilmer v. British Columbia Orchard Lands Ltd.⁽²⁾. The distinction I have drawn is supported by the decision of the Privy Council in Steedman v. Drinkle⁽⁴⁾ and it follows from this distinction that I can ignore in the Order which I make any possibility that the defendant's interest in the land can be preserved. The plea in misericordiam on behalf of the pupils of the school which is being conducted in the premises is, of course, irrelevant.

9. There must be judgment for the plaintiff for possession and for the injunction and declaration sought. There must also be judgment for the plaintiff for the two sums of money claimed, but execution upon this money judgment will be stayed for 14 days and if during that time an application for relief against forfeiture of the money is filed the stay will be extended until final determination of that application or further Order.

24th June, 1969.

Representation:

Litton (Woo & Kwan) for the Plaintiff

Bernacchi Q.C. & Sanguinetti (K.C. Yung & Co.) for the Defendant

Judgment pronounced by Huggins J. in chambers.

(1) 1952 1 All E.R. 149

(2) 1913 A.C. 319

(3) 1954 1 Q.B. 476

(4) 1916 1 A.C. 275