Attorney General v. Tong Iu and Another

HCA000031/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 31 OF 1968

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Coram: Rigby, S.P.J. in Court.

Date of Judgment: 4 October 1968

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JUDGMENT

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1. This case raises an issue of considerable practical importance, to wit, what is the precise legal effect of the document entitled "Particulars and Conditions of Sale" whereby a lease of land - or the right to be granted a lease of land - is sold by Government by way of public auction, coupled with the "Memorandum of Agreement" signed by the purchaser, upon the completion of the sale of the land to the purchaser, as the highest bidder, at the public auction.

2. For the purposes of this case the relevant facts have been agreed between the parties and may be briefly stated. On the 7th of September 1964 a Lot of Crown land in the New Territories, consisting of approximately 15,000 sq. ft., was knocked down to the defendants (who are brothers) as the highest bidders at a sale by way of public auction, for the premium amount of $1,205,000.

3. In accordance with Clause 4A of the Particulars and Conditions of Sale the first defendant, after the fall of the hammer declaring the land sold to them as the highest bidders, signed the Memorandum of Agreement. Under the Particulars and Conditions of Sale the purchasers were required to pay 10% of the total premium within three days of the sale, and the balance of the premium, plus interest thereon, they could elect to pay in seven, fourteen, or twenty annual instalments, the first instalment of which was to be paid within three days of the sale. In accordance with these conditions the defendants paid within the due period:-

The second and third instalments, each of $82,856, were duly paid as and when they fell due. The fourth instalment was due on the 7th of September 1967.

4. In August 1967 the defendants' solicitors wrote to the Deputy Commissioner, New Territories, stating that the defendants were "financially unable to fulfil their covenants as contained in the Memorandum of Agreement and Conditions of Sale dated the 7th of September 1964"; that they surrendered the land and gave up vacant possession, and they were prepared to treat the sum of $369,063 as forfeited. The Government, apparently not content with having pocketed $369,063 and having the land returned to it, now brings these proceedings to enforce what it claims is its legal right to sue for the fourth instalment of the premium required to be paid. Indeed, Mr. Hogg, Crown Counsel, contends that as a matter of law the Government is entitled to go on suing for the remaining sixteen instalments thereafter, as and when they fall due, despite the surrender of the land to it.

5. The defendants are the sole proprietors of an engineering firm. The first defendant informed the court that they acquired the land with the object of constructing a foundry upon it to be used in connection with their engineering business. However, that intended project fell through as they became in financial difficulties due to a variety of circumstances, including the run on the banks some two or three years ago. The land itself at the time they acquired it was vacant land and they erected a Nissen-type structure upon it for the purpose of using it for storage purposes. In March or April 1967 they vacated the land and in August 1967, through their solicitors they gave notice to the Government surrendering the land. As I understood the first defendant's evidence, no part of the temporary structure they had erected was still in existence on the land. The Nissen-type hut which they had constructed upon the land had some form of concrete flooring or foundation. There was some question as to whether this concrete foundation had not been already in existence upon the land when the defendants built their Nissen-type hut upon it. It was put to the defendant in cross-examination that the defendants themselves had laid down this foundation; the first defendant denied it and said that the foundation was already there and that all that the defendants had done was to make use of it for the purpose of putting up their own make-shift structure. It does not seem to me a matter of any great importance, but in the absence of any evidence to contradict that given by the first defendant, I accept his evidence that the concrete floor or foundation was already in existence and that the defendants simply made use of it for the purpose of erecting their own temporary structure upon it.

6. It is in these circumstances that the Crown now thinks fit to bring this claim for payment of the fourth instalment which is now said to be due and owing under the Particulars and Conditions of Sale and Memorandum of Agreement entered into by the defendants in respect of this land.

7. The argument advanced on behalf of the Crown is that the Particulars and Conditions of Sale coupled with the Memorandum of Agreement, when duly signed, constituted an executed as distinct from an executory contract; that the premium agreed to be paid under these two documents was in consideration for the right conferred by the Crown upon the purchaser to have at some future time a Crown lease granted to him, together with the immediate right to enter into occupation and to build on the land pending the granting of that Crown lease. Crown counsel maintained, therefore, that these two documents constituted a complete contract of sale and, in default of payment in any instalment as and when due, the Crown was entitled to sue for payment of that instalment.

8. On the other hand Mr. Bernacchi, for the defendants, contended that the two documents read together constituted an executory and incomplete agreement in that it was, in truth and in fact, an agreement to grant a lease at some time in the future and that the premium was the amount charged payable by way of annual instalments. From that basis he developed the argument that the Crown could only sue for the instalments due if it could first satisfy the court that it was entitled to specific performance of the contract. If, and only if, the Crown was entitled to specific performance of the contract would it then be entitled to the consequential right to sue for instalments of the premium as and when due. From there, Mr. Bernacchi, and Mr. Jackson-Lipkin who appeared with him, sought by reference to, and analysis of, the Particulars and Conditions of Sale itself, to show that the contract was in fact incapable of completion. For this purpose they relied in particular upon Clause 10(a) of the Particulars and Conditions of Sale. That clause provides that "The purchaser shall develop the Lot by the erection thereon of a building or buildings ...... to be completed before the expiration of 36 calendar months from the date of this Agreement and shall expend thereon a sum of not less than $450,000......"

9. It is not disputed that no such building or buildings of any kind have been erected, or commenced to be erected, on the Lot. Mr. Bernacchi contended that the plaintiff's remedy lay in damages for breach of contract, the quantum of damages being the difference, if any, between the premium paid, or to be paid, at the time of the agreement to sell, namely, $1,205,000, and the price obtainable as at the date of the breach of the contract. Mr. Bernacchi hazarded the not unreasonable speculation that those damages would be unlikely to exceed the $369,063 already paid by the defendants to the Crown and accepted by the defendants as forfeited.

10. Finally Mr. Bernacchi submitted as a last alternative that even if the Crown was entitled in strict law to claim for the payment of this fourth instalment the claim was of such an unjust and inequitable nature that this Court, in the exercise of its equitable jurisdiction, had a discretion to deprive the Crown, as plaintiff, from enforcing its strict legal rights. For that somewhat novel proposition, Mr. Bernacchi relied upon a principle invoked by Lord Watson in Grahame v. Magistrates of Kirkcaldy ⁽¹⁾ and referred to by Lord Reid in his speech in the case of White and Carter (Councils) Ltd. v. McGregor ⁽²⁾ to which I will later refer.

11. Returning now to the first part of Mr. Bernacchi's argument. As I understand that argument it was this; this was not a lease, it was simply an agreement for the lease and the instalments of premium were paid in consideration for, and in anticipation of, that lease being granted in due course. Until the lease was so granted the Agreement constituted an executory contract the performance of which could only be enforced by an action for specific performance. Specific performance was a discretionary remedy which could be granted by the Court in the exercise of its equitable jurisdiction. Where specific performance was granted then, and only then, would the vendor be entitled to claim the consequential right and remedy of claiming payment of rent, or arrears of rent, said to be due. Mr. Bernacchi contended that there could be no valid claim for arrears of payment of any instalment due unless the circumstances were such that the Court, in the exercise of its equitable jurisdiction, would grant specific performance of what, Mr. Bernacchi contended, was this executory agreement to grant the lease, and that the present claim of payment of an instalment of the premium was an attempt to enforce a right which would only lie if an order for specific performance was first granted. In support of his argument, Mr. Bernacchi referred to the cases of :- Walsh v. Lonsdale ⁽³⁾, Foster v. Reeves ⁽⁴⁾, Swain v. Ayres & Others ⁽⁵⁾ and Manchester Brewery Co. v. Coombs ⁽⁶⁾.

12. The success of Mr. Bernacchi's argument must necessarily depend upon whether or not the two documents, the Particulars and Conditions of Sale and the Memorandum of Agreement, constitute an executory as distinct from an executed contract. In my judgment they constitute a completed contract of sale. Upon the signing of the Agreement and payment of the initial 10% and payment of the first instalment the purchaser acquired the immediate right to enter into possession of the land. In my judgment the premium is paid not simply for the right to enter into a Crown lease at some time in the future but for the immediate right to enter into possession of the land and for the benefit of all the conditions in the Particulars and Conditions of Sale including, of course, the right, subject to the fulfilment of certain conditions, to enter into a Crown lease in the future.

13. As to Mr. Bernacchi's arguments that the conditions of the lease have not been complied with and, in particular, the covenant to build within 36 months is now incapable of fulfilment, "the failure of one party to perform a condition precedent only operates as a discharge of the contract if the other party elects to treat the contract as at an end" (Halsbury's Laws of England 3rd edition Vol.8 p.198 para. 335). It is well within the knowledge of these courts that it is by no means an unusual practice for the Crown to extend building covenants of this nature.

14. It only remains for me to consider Mr. Bernacchi's contention that, upon the admitted facts of this case, the claim by the Crown for payment of the fourth instalment of $82,856 when it had already received $369,063 and the land itself had been vacated and surrendered to the Crown, was so harsh and inequitable that this Court, exercising its equitable jurisdiction, should decline to give effect to that claim. Mr. Bernacchi's basis for this somewhat novel plea is to be found in the following passage in Lord Reid's speech in White and Carter (Councils) Ltd. v. McGregor⁽²⁾:

15. It is to be noted that these are all Scotch cases. Later on in the course of his speech Lord Reid went on to say:

"...... If a party has no interest to enforce a stipulation, he cannot in general enforce it: so it might be said that, if a party has no interest to insist on a particular remedy, he ought not to be allowed to insist on it. And, just as a party is not allowed to enforce a penalty, so he ought not to be allowed to penalise the other party by taking one course when another is equally advantageous to him."

16. Whatever may be the merits, or lack of merits, of the Crown's claim in this case it is quite plainly impossible to say that it would be "equally advantageous to the Crown to sue for damages for breach of contract" - as Mr. Bernacchi contended that it should do, when all that it need do - and is in fact doing - is to retain the $369,063 which it has already received and simply to sue for payment of the fourth instalment of the premium now claimed. There may be cases as, for example, penalty cases where a plaintiff seeks to exact a large amount of money from a defendant by reason of the failure of the defendant to comply with a particular clause in a contract. That type of case is well defined by Denning, L.J., as he then was, in the case of Stockloser v. Johnson⁽⁷⁾ when he said:

"......when one party seeks to exact a penalty from the other, he is seeking to exact payment of an extravagant sum either by action at law or by appropriating to himself moneys belonging to the other party, as in Commissioner of Public Works v. Hills (8). The claimant invariably relies, like Shylock, on the letter of the contract to support his demand, but the courts decline to give him their aid because they will not assist him in an act of oppression:"

Part of the words there used may not be entirely inappropriate to the facts of this case as they appear before me. But it is, I think, also relevant to refer to part of the judgment of Somervell, L.J., in the same case in the course of which he said, at page 446:

"......I find it difficult to see why, in a case of this kind, it should be unconscionable on the part of the vendor, who has contracted to part with his land on agreed terms, to enforce the contract if he so desires. There may be special circumstances in some cases, in which the court would take the view that it was unconscionable, and that the plaintiff was accordingly entitled to relief, but unless I can be satisfied that in this case there is something unconscionable in what the defendants seek to do, in my judgment I have no jurisdiction to grant any relief whatsoever."

17. In my judgment the Crown is strictly entitled to enforce the terms of this contract if it so desires and, distasteful though such enforcement may be when one bears in mind that the Crown has already received, and pocketed, $369,000 odd and the defendants, through their solicitors, have evinced their desire and intention to surrender the land to the Crown, I do not think that I can properly say that the conduct of the Crown is so unconscionable as to give me any jurisdiction to deprive it of its strict legal right. The Crown is seeking to enforce the contract; upon the facts as they appear before me, in my judgment, as a matter of law and upon a proper construction of the Agreement entered into between the parties, it is entitled so to do. There must accordingly be judgment for the plaintiff for $82,856, being the amount claimed.

Representation:

G.C. Hogg, S.C.C. for Plaintiff.

Bernacchi, Q.C. & Jackson-Lipkin (Woo & Woo) for Defendants.

(1) (1882) 9 R. (H.L.) 91, 92

(2) (1962) A.C. 413

(1) (1882) 9 R. (H.L.)91, 92

(2) (1962) A.C. 413 at 430 & 431

(3) (1882) 21 Ch. D. 9

(4) (1892) 2 Q.B. 255

(5) (1888) 21 Q.B.D. 289

(6) (1901) 2 Ch. D. 608

(7) (1954) 2 W.L.R. 439 at 447

(8) (1906) A.C. 368