Wong Hing Chuen and Others v. Chan Tim Tsai

HCMP000868/1981

Land - sale of Tso land in New Territories - construction of agreement - registration of lis pendens by third party merely delays or hinders completion but does not "prevent" it within meaning of relevant clause - frustration principles not applicable.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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Coram: Fuad, J.

Date of Judgment: 5th November, 1981.

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JUDGMENT

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1. This originating summons concerns a Sale and Purchase Agreement ("the Agreement") relating to two Lots of Land at San Wai Tsuen in the New Territories, part of the properties allotted to the Tang Kap Wing Tso ("the Tso") and registered in the District Land Office, Yuen Long.

2. The three plaintiffs in these proceedings claim that they were appointed managers of the Tso between the years 1954 - 1977. The agreement was entered into on the 11th August 1978, and under it the plaintiffs agreed to sell D.D. 124, Lot Nos. 2075 and 2042 to the defendant, Mr. CHAN Tim-tsui at $6.00 per square foot. The sum of $20,000 was to be paid (and was duly paid to a firm of solicitors as a stakeholder) as a deposit and in part payment. The following clauses are relevant to the arguments addressed to me:-

3. The plaintiffs claim a declaration that on a true construction of the Agreement "and in the events which followed", they are not bound to complete the sale of the land and that they are therefore discharged from any obligations under the Agreement. They also ask for a declaration that the defendant is entitled to a refund of the deposit without interest, costs or compensation. Recission of the Agreement is also sought.

4. The action referred to in clause 16 of the Agreement (H.C.A. 2125 of 1978) was instituted on the 10th July 1978 by Mr. TANG Sum-on against the three plaintiffs in the present proceedings, and the Attorney General, and by his statement of claim Mr. Tang claims to be the legal successor of the Tso and seeks -

Mr. Tang also seeks certain ancillary reliefs which need not detain us.

5. Mr. Tang did not apply for an interim injunction; instead the writ was registered as a lis pendens on the 16th August 1978 - that is to say some 37 days after the action was instituted and five days after the Agreement was entered into. I may mention in passing that the present proceedings were not filed until the 23rd June this year.

6. Although I have not seen copies of the letters dated the 19th September 1978 and the 22nd June 1979 said to have been addressed to the District Officer on behalf of the plaintiffs seeking his consent to the sale evidenced by the Agreement, they are mentioned in a letter dated the 8th August 1979 written for the same purpose. On the 23rd August 1979 the District Officer replied in the following terms:-

" I refer to your letter dated 8th August, 1979 and write to inform you that according to my land record, there is a writ of summons registered by Memorial No. 211093 of 16.8.1978 against the captioned lots. I regret, therefore, I am not prepared to consider your client's application for the time being."

7. One of the affidavits filed in opposion to this summons suggested that the plaintiffs (the defendants in H.C.A. 2125 of 1978) had been dragging their feet in some way in the conduct of their defence to that action, but after examining the file and taking into account the submissions of Counsel. I am satisfied that the action is taking its normal course with no one guilty of deliberate delaying tactics.

8. On behalf of the plaintiffs, Mr. Rony Tong contended that since time was expressly made the essence of the contract (clause 12) although a date was not fixed for completion, the parties must have intended by clause 3 that the consent of the District Office would be given within a reasonable time. He cited ample and well settled authority for the proposition that where there is no provision fixing a date for completion the law implies that it will take place within a reasonable time; and what is to be regarded as reasonable time will depend on the amount of legal work necessary to investigate title, prepare documents etc. (Johnson v. Humphrey [1946] 1 All E.R. 460 and Simpson v. Hughes (1897), 66 L.J. Ch. 334). Here, Mr. Tong pointed out, the delay had been one of well over three years.

9. Mr. Tong further submitted that the very existence of clause 16 in the form that it took, provided the plaintiffs' case with eloquent support. An act of the kind precisely envisaged by the parties when settling that clause had taken place for Mr. TANG Sum-on, the plaintiff in H.C.A. 2125 of 1978, had effectively prevented the plaintiffs (the vendors) from proceeding to completion by registering his lis pendens. Anticipating Mr. Thomas Lai's submission on behalf of the defendant (the purchaser), Mr. Tong argued that it could not be right to say that when clause 16 was agreed to, the parties intended to await the final determination of the action to see whether ultimately completion was prevented or not. If that contention were sound then there would have been no point in having clause 16 at all for the plots could only have been sold if Mr. TANG Sum-on failed in his action; if he succeeded there would be nothing to sell. Since this was so. how could it be said that Mr. Tang could prevent the plaintiffs from selling the land after the conclusion of his action? The only way in which Mr. Tang could prevent the sale within the meaning of the clause was to take a step pending the outcome of the action. Mr. Tong suggested that it was not inevitable that Mr. TANG Sum-on would register his lis pendens. He might have chosen not to do so and if the sale had gone through, relied on his remedy in damages.

10. It was also submitted by Mr. Tong that when the Agreement is read as a whole, as it must be, the arguments he sought to advance were clearly sound. Clause 3 could easily have said that completion was to take place only after the adjudication in the pending action, and it did not.

11. Mr. Tong invited me to draw an analogy from the principles in "frustration" cases, (for example WONG Lai-ying v. Chinachem Investment Co. Ltd. (1980) H.K.L.R. 1) and to find that it would not be right to hold the parties to the Agreement now that an unforeseen delay of over three years had taken place (and if the defendant was right, the delay might extend to a further year or so). With due respect to this argument I do not think that any assistance can be derived from such authorities. Although my task is not an easy one, my duty is plain - I must look at the Agreement as a whole and, according to its terms, ascertain what the parties meant.

12. Mr. Thomas Lai, for the defendant began his submission by drawing my attention to the fact that the dispute over the land of which the two Lots referred to in the Agreement form a part, began as long ago as 1953, as was clear from the pleadings in H.C.A. 2125 of 1978. He asked me to note that on two dates well under one month before that action was filed two Powers of Attorney were executed in favour of the 2nd plaintiff in these proceedings and to infer that in full knowledge of the facts surrounding the dispute, the plaintiffs tried to steal a march on the plaintiffs in H.C.A. 2125 of 1978 but since it took time to find a buyer, the documents could not be drawn up in time before the institution of the action. This, it was suggested, was the reason for the unusual nature of the terms of clause 16. I will say at once that I find no warrant on the facts or in law to draw any such inferrence. But, of course, as shown by Prenn v. Simmonds [1971] 1 W.L.R. 1381, one of the cases cited to me, evidence of the factual background known to the parties on or before the date of the Agreement is both relevant and admissible.

13. It was contended by Mr. Lai that the plaintiffs knew they might have to face difficulties in the light of the institution of H.C.A. 2125 of 1978 and this was why clause 16 had been inserted, principally for their benefit. Nothing had happened since the execution of the Agreement except the registration of the lis pendens, a step by the plaintiff in that action which must have been anticipated. "Prevent" must mean "prevent until the final disposal of the action", for if clause 16 were to be given any other interpretation it would be meaningless. The clause must have been carefully thought out. The parties knew about the pending action and that one of the reliefs sought was an injunction that would affect the land to be sold under the Agreement. An interim injunction might have been sought simultaneously or very shortly afterwards, and an application for such relief was only to be expected. If an interim injunction (or, as happened, the registration of a lis pendens) could have been what the parties had in mind, the Agreement might have survived only a matter of weeks, perhaps even days, and the whole exercise would have been rendered futile.

14. In answer to the point made by Mr. Tong that if the plaintiff in H.C.A. 2125 of 1978 won his action there would be nothing to sell, and so clause 16 could not have required the final disposal of those proceedings, Mr. Lai argued that if Mr. TANG Sum-on did succeed the plaintiffs here would have to pay heavy damages to the intended purchaser unless protected, as they were, by the terms of the clause.

15. The opposing arguments are nicely balanced. In my judgment, the plaintiffs cannot rely on the principle that completion must take place within a reasonable time in the absence of a fixed date because the parties obviously knew that the consent of the District Office was a condition precedent stipulated by law, and expressly provided for it by clause 3. No doubt remedies would be available to the parties if the District Office delayed or refused consent for unacceptable reasons but on the facts of this case, while Mr. TANG Sum-on's lis pendens remained registered, no consent would be given. Reading the Agreement as a whole against the background of the relevant facts, I have reached the conclusion that by saying "should the vendor be prevented from completing the sale of the properties herein by the plaintiff in the said action" the parties intended to deal with the situation that would arise if Mr. TANG Sum-on succeeded in his claim. In my judgment, by registering the lis pendens, in the ordinary and fair use of language, Mr. Tang delayed or hindered completion but he could not be said to have prevented completion until he had rendered it impossible, and this he could only do by the ultimate successful conclusion of the litigation he instituted.

16. For the reasons I have given the summons must be dismissed with costs.

Representation:

Mr. Rony Tong (P.C. Woo & Co.) for Plaintiffs.

Mr. Thomas Lai (Francis Chaine & Co.) for Defendant.