Cheung Ching Ping Stephen v. Allcom Ltd
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HCA 2208/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2208 OF 2008 ____________ BETWEEN
____________ Before: Deputy High Court Judge Carlson in Chambers Date of Hearing: 30 June 2009 Date of Judgment (Handed Down): 23 July 2009 _______________ J U D G M E N T _______________ Introduction 1.This is a summons under Order 14 seeking summary judgment arising out of a contract for the sale and purchase of a property at Sai Kung for an agreed selling price of $36 million. 2.Miss Eu SC, who appears for the Plaintiff purchaser (“the purchaser”) accepts that, more appropriately, the summons should have been taken out under Order 86 as has been pointed out by Mr Patrick Fung SC, counsel for the Defendant vendor (“the vendor”). Mr Fung takes no substantive point on this and so the matter can rest as it is. 3.The main issues raised in the dispute are whether time was of the essence of the contract and, if it was, whether the failure to complete the conveyance on the due date had been waived by the purchaser so that the due date became some future date to be established by the vendor upon it having given the purchaser reasonable notice of that date. 4.The way in which these issues arise will emerge from the documents and the accompanying correspondence which I will need to recite as briefly as I can. 5.Mr Fung submits that when all is said and done, this is an application for summary judgment in which he has been able to identify from the evidence a number of issues which require the action to go to a conventional trial. These issues can only be resolved by having the witnesses who can speak to them examined and cross-examined in the usual way. His client is not to be driven from the judgment seat on what essentially has been a paper exercise. Chronology 6.This covers a period from 20 November 2007, when the parties entered into a provisional sale and purchase agreement (“PSP”) until 5 November 2008 when the purchaser issued his writ. It is also worth observing that the litigation was reasonably well-developed before this summons for summary judgment was taken out on 9 February 2009, in the sense that following the filing of the acknowledgment of service by the vendor, the purchaser had filed his Statement of Claim to which the vendor filed its Defence which was subsequently, on 11 March 2009, amended by consent to include a counterclaim. And so, not that it matters for the purposes of the task before me, if there is to be a trial the case is essentially ready. All the relevant documents have been disclosed as is most of the relevant evidence in the form of the present affirmations. 7.The claim is for breach of the PSP by the vendor for having failed to show good title on the specified completion date of 19 August 2008 and therefore, being unable to complete on that date. As a result of this breach, the purchaser seeks to have returned to him his deposits of $3.6 million and in addition liquidated damages of $1 million being the amount of the initial deposit, as provided in clause 8 of the PSP, together with interest on these amounts, all of this consequent upon the court making an appropriate declaration that the PSP is void or alternatively, an order for recission of the PSP. 8.The history of this case can be traced through the conveyancing documents and the accompanying correspondence. The PSP is a B/63. It is in common form of the type used by estate agents. The price ($36 million) is at clause 2. The instalments, $1 million on signature, $800,000 on 10 December 2007 and a further deposit of $1.8 million on 19 January 2008 and the balance of $32.4 million on completion, which is stated to be on or before 19 August 2008, are set out in clause 2(a) to (d). By clause 7, should the purchaser fail to complete, the initial deposit will be forfeited to the vendor whereafter the vendor will be free to sell the property to anybody else. Any right to damages and/or specific performance is excluded. 9.Clause 8, to which I have already made reference, provides for the consequences of the vendor’s failure to complete which is the return of the deposits and liquidated damages of $1 million quantified by reference to the amount of the initial deposit. 10.The other clause to which specific reference needs to be made is clause 18. It was written into the form of the PSP to cover the particular circumstances of this transaction. It says this;
11.Ultimately, it is the failure to obtain approval of the DMC from the Lands Department by the stated completion date of 19 August 2008 which has brought about this dispute. Plainly, clause 18 was designed to draw attention to the fact that this crucial approval of the DMC by the Lands Department remained outstanding. The matter came about in this way. There was an Agreement and Conditions of Exchange dated 3 December 2002 registered in the Lands Registry as a New Grant No. 9696 which had been entered into between the Government and the Vendor’s immediate predecessor in title. By special condition (16)(a) of the New Grant provides inter alia as follows:
This therefore amounted to a prohibition on the sale until approval of the DMC had first been obtained. 12.What can, I think, be said is that the period between the signing of the PSP on 20 November 2007 and the date set for completion on 19 August the following year was an unusually long one in a conveyancing matter such as this concerning the sale of a private residential property. This leisurely pace had been set, I have no doubt, in contemplation of the delay that might be expected in obtaining the necessary approvals from the government in respect of the DMC. 13.In respect of the correspondence that followed the signing of the PSP, Miss Eu has taken me through each and every letter, which was an essential exercise in presenting the purchaser’s case. It is not necessary for me to repeat that process as part of my judgment where the letters are in the bundle and there to be read. I will summarise the effect of the correspondence and significant events that are reflected in any particular letter or letters with reference to the issues that this summons has raised. 14.On 5 December 2007 the purchaser’s solicitors Messrs C K Mok & Co. wrote asking for a draft of the formal Agreement for Sale and Purchase which by clause 2(b) of the PSP was to be signed on or before 10 December 2007 and thereby supersede the PSP. This was responded to on the same day by the vendor’s solicitors Huen & Partners who enclosed a draft Memorandum of Understanding together with a formal Agreement for Sale and Purchase and requiring payment of the second tranche of the deposits in the sum of $800,000 which needed to be paid on 10 December 2007. C K Mok & Co. replied on 10 December 2007 enclosing a cheque for $800,000 but without returning a signed Memorandum of Understanding or the formal Sale and Purchase Agreement. This latter document is at B1/110-114. Its purpose would appear to have been to recite that both parties were “fully aware” that the DMC had been submitted to the government for approval, which perhaps added nothing to clause 18 of the PSP, and then by clause 1 of the Memorandum the parties committed themselves respectively to sell and purchase the property once the DMC was approved on terms set out in the formal Agreement for Sale and Purchase. As I have already observed neither of these two documents were signed leaving the PSP as the only document that the parties did sign. 15.Huen & Partners also sent, on 10 November 2007, a copy of the New Grant No. 9696 and the copy consent letter dated 14 August 2007 [B1/69-72]. On 21 January 2008, a further tranche of the deposits, this time for $1.8 million, was sent by C K Mok to Huen & Partners thereby complying with clause 2(c), albeit two days late. The matter appeared to be proceeding without mishap towards its completion on 19 August 2008. On 2 April 2008 C K Mok wrote, referring to a telephone conversation with Huen & Partners’ Mr Francis Tsang who apparently had told them that the government approval for the sale had been obtained, and asked for a draft Agreement for Sale and Purchase for their approval [B1/81]. This was not replied to by Huen & Partners and a reminder was sent by C K Mok on 17 May 2008 [B1/82] which on this occasion produced a reply the following day enclosing a draft Agreement for Sale and Purchase. C K Mok having considered the draft wrote on 22 May [B1/84] requiring a sight of a number of documents relating to the approval of the DMC by the government. A hastener had to be sent on 27 May 2008 [B1/85]. It is right to say that at this stage the purchaser and his solicitors were showing every indication of getting on with things and completing as soon as they could. 16.This letter of 22 May was replied to on 17 June enclosing a fresh formal Agreement for Sale and Purchase together with the title deeds. On 7 July, C K Mok wrote again asking for documents. On 9 July Huen & Partners sent some, but were still waiting for a vital ‘Modification Letter’ from the government and would send that once they received it. On 15 July 2008, C K Mok wrote requiring inter alia, as soon as it was to hand, the Modification Letter. This letter was not replied to and another hastener was sent on 24 July which did not elicit a reply judging by C K Mok’s further letter of 11 August [B1/92] referring to telephone calls between the two firms on 4 and 7 August. This letter suggested that the Deed of Variation had been executed by the mortgagee, which the vendor would execute on 15 August. C K Mok wanted a copy of this Deed sent to them for submission by the purchaser to his bank to process his mortgage application. 17.The 19th August 2008 completion date passed and on 20 August C K Mok wrote [B1/93] referring to their telephone conversation with Huen & Partners and referring to the fact that the vendor had executed the Deed of Variation and that the government would do the same on 22 August. Huen & Partners also informed C K Mok that the vendor had applied “for permission to amend the approved draft [DMC] by adopting the same definition for the Development” as in the Occupation Permit No. NT19/2008(OP) and anticipating that permission would be granted shortly.” I have set this out in order to show that there was still some distance to go before everything was in order to enable the conveyance to be completed. The vendor was very much in the hands of the government as to the speed at which this process would be completed. C K Mok finished their letter by saying this ― I set this out to show their attitude to the conveyance now that the completion date had passed –
On the face of it, so far as C K Mok were concerned all systems were go, although it has to be observed that the concluding sentence of this letter said: “In the meantime all our clients’ rights are reserved.” This is one of two letters relied on by the vendor to show a waiver of a breach of any term that there should have been completion by 19 August. 18.Then there was silence from the vendor for 22 days, so that on 11 September [B1/94] C K Mok wrote again. They said:
This too is relied on by the vendor to show a waiver of any breach as to time. On 19 September 2008 [B1/95], Huen & Partners responded with the discouraging news that;
19.On this occasion C K Mok, who hitherto had been quick off the mark on correspondence, took their time. They did not reply for three weeks. On 10 October 2008 [B1/96] they replied to say that the offer to purchase was now withdrawn and that the purchaser wanted his $3.6 million returned to him. They returned all the conveyancing documentation that Huen & Partners had previously sent them. 20.On 14 October [B1/98] Huen & Partners replied refusing to return the deposits. Their stance was that both the purchaser and the vendor understood that the PSP was subject to the approval of the draft DMC by the government as well as slope upgrading works. The DMC had been approved on 18 March 2008 and the rest of the required approvals were to be forthcoming shortly. They insisted on the conveyance going through to completion. 21.C K Mok replied to this on the following day [B1/101-102] and sought to analyse the situation as one where it was very plain that because of the absence of the requisite government consents the vendor had not been able to complete in accordance with the PSP. The analysis was the following:
22.With regard to this analysis, as with the original letter demanding the return of the deposits, this being the letter of 10 October [B1/96] supra, Mr Fung observes that there was no allegation of breach by virtue of an inability and failure to complete on 19 August 2008 (as appears in the PSP) and of acceptance of that breach and for compensation as appears in clause 8 of the PSP. 23.There then followed correspondence in which Huen & Partners sought, to put it neutrally, clarification by C K Mok as to why the purchaser was justified in not going on with the conveyance based on the terms of the PSP. 24.A substantive reply came on 31 October [B1/106].
In respect of this letter, Mr Fung submits that this is the first occasion when reliance is placed on a repudiatory breach and acceptance of that breach, although nothing is said as to when that repudiation was accepted. 25.A second letter was sent by C K Mok to ask if Huen & Partners had instructions to accept service of proceedings to which they replied that they did. As I have already said the writ was issued on 5 November 2008. 26.One would have thought that the issue of the writ might have put an end to the contractual phase, leaving over the litigation to proceed in court, but not so in this case because on 8 January 2009 Huen & Partners wrote again [B1/195] to say that all outstanding matters had been attended to and that in consequence the vendor was now in a position to complete and that it was now giving notice that it required completion on or before 5 pm on 9 February 2009 and that time would be of the essence. Four days later, the vendor filed its original defence to the action. 27.The correspondence to which I have referred forms the platform on which this summons has been contested. As with most disputes of this type, it is the state of the property market which causes the litigation. In this case, the PSP had been signed in late November 2007 at a time when property prices were on the up and there were plenty of vendors and willing purchasers. By August 1998, the world found itself at the start of a massive economic decline in securities, banking and property. By October 2008 that decline had become very well defined. Mr Fung has observed that come 19 August 2008, when there were the first signs of economic problems the purchaser was prepared to play a wait and see game. No alarm bells had been sounded by the purchaser in early August about the approach of the closing date on 19th and when it came and went there was barely a protest. On the contrary if 19 August is to be viewed as contractually significant, Mr Fung submits that the letters of 20 August and 11 September, which he relies on, [B1/93 and B1/94 supra] amounted to a waiver, so that the matter remained bouyant until either party chose, by notice, to make time of the essence again which the vendor did by its letter of 8 January 2009. Mr Fung complains that the purchaser has, if anything, behaved less than honourably by playing a game of wait and see until 31 October 2008 when the economic collapse was plain for all to see and only then made his case clear by relying on repudiatory breach. Previous attempts to get out of the contract had been ill-defined and of no substance. 28.Whilst there is much force in what Mr Fung has suggested, ultimately a purchaser’s commercial motives for seeking to pull out of a conveyancing transaction such as this is neither here nor there. In the end what may have given rise to such a decision only forms the backdrop to the dispute. The actual outcome must be determined on what I believe are now well-settled legal principles to which I must now turn. Time of the essence 29.I have had, if I may say so, the advantage of two very comprehensive opposing arguments. Essentially, the matter reduces itself to the following analysis. Firstly, was time of the essence in this conveyance so that completion had to take place on or before 19 August 2008? If it was not, as Mr Fung suggests was the case, then the matter was to proceed on the basis that the conveyance would be completed once the government had given its required consents which would enable the vendor to sell and to give good title. He submits that this took place on or about 2 January 2009 (see Huen & Partners’ letter of 8 January 2009 [B1/195]) after which the vendor elected to give the purchaser reasonable notice to complete, in this case on or before 9 February 2009 making time of the essence. On his analysis, the date of 19 August 2008 was merely aspirational, a hoped for date being the best pre-estimate that could be provided for the government to eventually get around to give its consents. In this regard, clause 18 in the PSP is of crucial importance because it shows that the parties were aware that these outstanding issues needed to be resolved before completion. 30.Nevertheless, if I hold that ab initio time was of the essence with 19 August 2008 being the red-letter day, then Mr Fung says that on a reasonable reading of the correspondence the purchaser was content to waive that “breach” and in fact never suggested that the vendor had repudiated the contract by not completing on 19 August until C K Mok’s letter of 31 October (10 weeks after 19 August) [see B1/106] and even then never made clear when that repudiation had been accepted. Presumably, on Mr Fung’s assessment, the earliest acceptance would have had to be by this letter of 31 October and certainly no later than by 5 November 2008 when the writ was issued. 31.Miss Eu submits that time was of the essence. Time is effectively always of the essence in conveyances in Hong Kong and there is no reason in this case to hold otherwise. The fact that there were the outstanding issues with the government consents had been recognised and accommodated by the fact that the completion date was to be nine months after the signing of the PSP. Miss Eu has relied on Sihombing & Wilkinson: Hong Kong Conveyancing at [351], which very helpfully summarises the relevant case law on this issue. I need only cite part of [351](1) and (2) which makes this point clear:
At [352] the learned authors dealing with time say this:
32.The matter is made even more clear by the case of Wellfit Investments v Poly Commerce Limited & Another [1997] 2 HKC 236 which is another appeal from Hong Kong to the Privy Council. The court’s approach on agreements for sale which specify a date for completion is that such a date will be of the essence unless there is something in the agreement which can be said to displace such an implication. 33.In answer to this, Mr Fung has relied on Professor Farrand’s text book “Contract and Conveyance” 4th ed at p. 181. In respect of this issue, Professor Farrand refers to United Scientific Holdings Limited v Burnley BC [1978] AC 904 in which it was held that stipulations as to time in contracts for the sale of land are not of the essence unless the contrary is stipulated or the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence. See Halsburys Laws of England 4th ed, vol 9, para 481, p. 338. 34.Whilst this is undoubtedly so in England where everybody proceeds on the basis that time will not be of the essence unless otherwise stated or by notice is subsequently made of the essence, the contrary obtains in Hong Kong given the particular circumstances and attitudes to property transactions which is reflected in the authorities to which I have referred. 35.Accordingly, I am satisfied in the absence of any contrary stipulation or circumstances peculiar to this transaction, that time was of the essence of the contract. In arriving at such a conclusion, I have had particular regard to clause 18 and to the fact that the purchaser had, from the outset, been made aware of the fact that crucial government consents needed to be obtained, without which the vendor could not give good title. The 9-month time-lag between the PSP and the date of completion on the 19 August 2008 dealt with this issue conclusively. Waiver 36.Implicit in my finding that time was of the essence is that the vendor repudiated the contract by being unable to complete on 19 August. Whilst not accepting that this is so, Mr Fung submits that in any event the purchaser by conduct, including C K Mok’s letters of 20August and 11 September had waived the breach. If this was so the contract remained alive and on Mr Fung’s analysis it did so until his client gave notice that he was in a position to complete by Huen & Partners letter of 8 January 2009 and that it required completion no later than 9 February 2009, specifically making time of the essence. I have already referred to the correspondence in this regard. 37.Mr Fung’s argument proceeds on the basis that the two letters, in August and September, show that the purchaser considered the contract as very much afoot, certainly until the letter of 10 October [B1/96] when Huen & Partners were told that the purchaser now withdrew his offer to purchase and wanted his money back. And even then, the initial analysis put forward by C K Mok in their letter of 15 October [B1/101-102] differed from that of 31 October [B1/106] and this letter as well failed to make clear when the vendor’s repudiatory breach had been accepted. 38.In relation to the suggestion that her client had waived time on performance, Miss Eu has referred to the cases of Wellfit Investments Limited supra and Union Eagle Limited v Golden Achievement Limited [1997] 1 HKC 173, both of which were Hong Kong appeals to the Privy Council. In Wellfit Lord Browne-Wilkinson held that what was required was a “clear, unambiguous and unequivocal statement”, in that case that if the cheques were sent after 3 pm [the due time] the contract would still be honoured. In that case in the Court of Appeal, Godfrey JA said this;
39.The question here is whether the August and September letters and the wait and see attitude, certainly until 10 October, very nearly two months after 19 August could be construed as a waiver. It seems to me that the law will allow the innocent party a reasonable degree of latitude and what the court is required to look for is positive and unambiguous conduct that there has been a waiver and that the agreement remains extant. I describe it as a latitude in the sense of the innocent party not having to jump in at the first opportunity after time for completion has passed and asserting repudiatory breach by the other contracting party. Notwithstanding a passage of 10 weeks in this case, it seems to me that the purchaser was entitled to stand on his rights without expressly asserting them, to see how the matter developed. Once it had become clear, (commercial considerations aside given the global financial crisis) that the vendor was in no state to complete any time soon, on the authority of cases such as Wellfit and Union Eagle Limited, the purchaser was entitled to pull the shutters down, assert repudiation and then accept it and claim his rights under the PSP. 40.In such circumstances – that is to say a contract in which time was of the essence, in which the vendor was unable to deliver completion and that the purchaser never waived his rights as a result of the vendor’s repudiation by not completing by the due date – the vendor can have no answer to the action. 41.This being an Order 14 summons, I have paused and reflected to consider whether Mr Fung has been able to raise any legitimate issue or issues which would force the purchaser to a trial. In the event, I am satisfied that none exist on this evidence in this case. 42.Once time is shown to be of the essence, on which issue there can only be an answer in favour of the purchaser, the next and only other issue is whether there has been a waiver by conduct as evidenced by the correspondence. Whilst Mr Fung can, very understandably, raise the two letters that I have drawn attention to and all the other correspondence down to 31 October 2008, both as to the time-scale and the content of those letters, I am afraid, given the way that the courts in Hong Kong, as exemplified in the two Privy Council appeals and the other authorities that Miss Eu has drawn to my attention, there is simply no reasonably arguable evidence to support (per Lord Browne-Wilkinson) a clear, unambiguous and unequivocal statement that later performance, that is to say after 19 August, would be accepted. Finally, although it hardly needs to be stated, once I have found time to be of the essence, the evidence is all one way that absent the requisite consents by the government, the vendor was in no position to convey the property on that date. The result 43.Given these findings, the purchaser must have judgment in terms of paragraphs 1 to 5 of the summons. As to interest I will ask the parties to submit a brief written argument on the rate and the period or periods over which interest should run. The Plaintiff should submit something within 14 days and the Defendant will reply within 14 days after that. Additionally, on costs which I would have thought must follow the event, I see that the Plaintiff has submitted an account for a gross assessment. As the order for costs will be an order nisi, I would ask the Defendant to state its objections, if any, to the proposed order for costs and to comment on the amounts sought on the gross assessment and to say whether the Defendant would wish for a taxation instead of a gross assessment by me. The Defendant will go first on this within 14 days and the Plaintiff can reply, if it wishes to, within 14 days after that.
Audrey Eu, SC and David W. K. Tang, instructed by Messrs C K Mok & Co., for the Plaintiff Patrick Fung, SC and Kenneth C K Chow, instructed by Messrs Huen & Partners, for the Defendant |
Cases cited in this judgment
Tse Ping Shun David and Another v. Lai Ho Man Shan Grace and Another
Cheung Ching Ping Stephen v. Allcom Ltd
European Asia (Hong Kong) Investment Ltd v. Wong Shun on Anthony
Cheung Ching Ping Stephen v. Allcom Ltd
Other judgments that cite this case
Further hearings and rulings under HCA 2208/2008