WELLFIT INVESTMENTS LTD v. POLY COMMENCE LTD

1990 No. A8737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

____________

Coram: The Hon. Mr. Justice Keith in Chambers

_______________

J U D G M E N T

_______________

1. I grant a stay of execution until the hearing of the confirmor's appeal on that part of my judgment of 8th January by which I ordered specific performance of the agreement for the sale of the flat. There are four reasons why I have decided to grant a stay:

(i) Wellfit does not oppose such a stay, provided that there is no stay on the order for the payment of damages, interest and costs.

(ii) It is not going to be all that long before the appeal is heard. It is fixed for hearing in less than 4 months time on 5th November.

(iii) If the flat was to be assigned to Wellfit before the appeal is heard, Mr. Cheung and his family would have to move out of the flat. If the appeal is eventually allowed, that disruption to their lives should never have occurred.

(iv) If the flat is sold in the meantime by Wellfit, then it will not be possible to put the confirmor back in the position in which it would have been entitled to have been if the appeal is allowed.

I appreciate that a stay of execution on the order for specific performance prevents Wellfit from dealing with the flat as it chooses, but that is what the damages are there to compensate Wellfit for.

2. I turn to whether there should be a stay of execution on the order which I made for the payment of damages, interest and costs. The total amount of damages, interest and costs is not yet known. I propose to take the sum of $5.25m. as the best estimate, which is, broadly speaking, half-way between Wellfit's estimate and the confirmor's estimate. On the face of it, a stay of execution is not appropriate. The confirmor can be protected from the possibility of Wellfit spending the money before the appeal is heard, thereby preventing the confirmor from recovering it if the appeal is allowed. That protection can be afforded in a number of ways, the most appropriate, in my view, being an undertaking from Wellfit's solicitors (which Mr. Denis Chang Q.C. for Wellfit told me the solicitors are prepared to give) that the money once paid will be held by them in an interest-bearing account as stakeholders.

3. Accordingly, the only ground for staying execution on the part of the order which I made relating to the payment of damages, interest and costs is that not even Wellfit can assert that the confirmor will be obliged to pay the whole of the damages, interest and costs. If the appeal is allowed, the confirmor obviously will not have to pay anything. If the appeal is dismissed, the confirmor will have to pay damages, interest and costs, but less the $4.27m. which is the balance of the sum payable by Wellfit when the property is assigned to it.

4. The problem is that if the $4.27m. is paid to the confirmor before the total amount of the damages, interest and costs is paid to Wellfit, and if the $4.27m. or part of it is used to pay off the debt which is admitted is owed by the confirmor to Mr. Cheung, there might be nothing left in the confirmor's kitty to discharge its liability for damages, interest and costs to Wellfit. I accept that Wellfit needs to be protected against that. Various suggestions have been made to me as to the best way in which that protection for Wellfit could be achieved, but Mr. Chang needs time to consider what is the most appropriate way, and whether the particular suggestion which Miss Maria Yuen for the confirmor makes is indeed appropriate. Having decided the issue of principle which divides the parties, the course I propose to take is to adjourn the question as to the extent to which there should be a stay of execution on the order for the payment of damages, interest and costs pending the hearing of the appeal so as to enable the parties to agree terms. I give the parties liberty to restore the summons in the event of them being unable to do so.

Representation:

Mr. Denis Chang Q.C., instructed by Messrs. Herbert Smith, for the Plaintiff

Miss Maria Yuen and Miss Lisa Wong, instructed by Messrs. Vincent T.K. Cheung, Yap & Co., for the Defendant

1990 No. A 8737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_________________

_________________

_________________

JUDGMENT

_________________

INTRODUCTION

1. The facts of this case are set out in the judgment with I handed down on 25^th July 1995. I now have to decide what remedies Wellfit is entitled to as a result of the confirmor’s breach of the sub-sale agreement. That issue has been fought with the tenacity which has been the hallmark of this litigation.

THE CLAIM FOR SPECIFIC PERFORMANCE

2. The primary remedy which Wellfit seeks is specific performance of the sub-sale agreement. That is not surprising. If the confirmor is required to assign the flat to Welfit, Wellfit will be acquiring an asset worth far more than the $4.75m which Wellfit was obliged to pay for it in December 1990 under the sub-sale agreement. However, as I indicated in my ruling of 13^th December, the jurisdiction to grant the equitable remedy of specific performance is based on the inadequacy of an award of damages, which is the only remedy which the common law affords for breach of contract. Accordingly, specific performance of the sub-sale agreement will not be ordered if damages at law will give Wellfit the full compensation to which it is entitled.

3. What this means is that it is necessary first to identify on what basis damages would be assessed at law. Once the basis of that assessment has been identified, it is then necessary to decide whether damages assessed on that basis would adequately put Wellfit into as beneficial a position as it would have been in if the sub-sale agreement had been performed. The effect of my ruling on 13^th December is that, in determining those questions, I am entitled to take into account the fact that in February 1991 the Hunts sold their shares in Wellfit to a company controlled by the partners of KLY (“KLY” Nominees”).

THE BASIS OF THE ASSESSMENT OF DAMAGES AT LAW

4. The relevant principles as to the measure of damages where the seller of property fails to convey it to the purchaser otherwise than for a defect in the seller’s title are conveniently set out in McGregor on Damages, 15^th. ed., paras. 904-907:

“ The normal measure of damages is the market value of the property at the contractual time for completion less the contract price … [B]ut such a measure could be grossly unfair to a buyer if prices had escalated between the contractual date for completion and the date of judgment in his action for damages, as the award he obtains will fall far short of giving him the means of acquiring an equivalent property. Of course he cannot complain of this if he ought to have acquired an equivalent property before the escalation of prices, but he may be able to show good reason why he did not do so. Thus if he brought a claim for specific performance in circumstance where he had a reasonable chance of obtaining such a decree but in the event was refused one and awarded damages instead, it would clearly be pointless for him to have acquired an equivalent property while he was awaiting the outcome of his specific performance suit … [T]here seems no good reason why [damages based on the market value of the property on the date of judgment] should not be available at law in appropriate case, and this has been accepted … in two cases where once again, before having to turn to the damages remedy, a reasonable and proper attempt to compel the defendant specifically to perform had been made, viz. in Malhotra v. Choudhury [1980] Ch. 52 by the Court of Appeal, where however the valuation was moved back from the date of judgment by one year because of the buyer’s delay in pursuing his claim, and in Johnson v. Agnew [1980] A.C. 367 by the House of Lords, where however the converse case of a buyer’s failure to complete was involved.”

5. I deal first with the period prior to the sale of the shares in Wellfit to KLY Nominees. I have no doubt that this was a case in which Wellfit had good reasons for not acquiring an equivalent property before then. Miss Maria Yuen for the confirmor did not argue otherwise. I accept that it must have been apparent to the Hunts very soon after 19^th December 1990 that the confirmor was not going to sell the property to Wellfit. But that does not mean that the Hunts should then have looked for an alternative property to buy through Wellfit. The property which they had wanted to buy was the flat to which the sub-sale agreement related, and the Hunts were entitled to press for specific performance of it. They would have had every expectation that the court would order specific performance of the sub-sale agreement if the confirmor was found to have repudiated it. Specific performance is, after all the usual remedy for a seller’s failure to complete. Even though there was no direct evidence that the Hunts bought the flat (albeit through Wellfit) because they intended to live in it themselves, the law assumes that property is unique to the purchaser, because the purchaser has chosen to purchase that particular property  and not another one. That is why the Court assumes that the purchaser cannot be adequately compensated by the mere payment of money.

6. I turn to the period after the acquisition by KLY Nominees of the shares in Wellfit. The effect of the purchase was that, for all practical purposed, the Husts were no longer interested in the action. They had the finance to proceed with the purchase of another property. I have had no evidence as to why the shares in Wellfit were sold to KLY Nominees, but I can, I think, be forgiven for assuming that that was the price which KLY had to pay to take over the litigation and thereby to avoid a potential claim against them for negligence by Wellfit. That is the assumption which Nazareth V-P made: his reference to KLY clearly being entitled “ to take action to limit the damages to which they might have been exposed by purchasing [Wellfit]” shows that he assumed that the acquisition was an exercise in damage control. The effect of it was that it was KLY Nominees who had the risks and the rewards of the litigation.

7. Could the new owners of Wellfit reasonably have concluded that, despite their acquisition of the shares, the Court might well order specific performance of the sub-sale agreement if the confirmor was found to have repudiated it? In my view, they could. They were obviously not interested in acquiring an equivalent property before property prices increased any further: the purchase of property was not the reason for their acquisition of the shares. But it would quite reasonably have been open to them to conclude that the Court would order specific performance of the sub-sale agreement on the basis of the following reasoning:

(i) Specific performance is the usual remedy for the failure of a seller of land to complete the transaction. That is because damages cannot adequately compensate the buyer because what he is buying is unique.

(ii) The fact that the shares in Wellfit had changed hands was irrelevant because the uniqueness of the asset which Wellfit had agreed to buy was wholly unaffected by the sale of the shares in Wellfit.

(iii) The fact that the shares in Wellfit had been sold to KLY Nominees in order to limit KLY’s exposure to claims from Wellfit did not make the asset which Wellfit had agreed to buy any the less unique to Wellfit. The flat remained of unique value to wellfit even if the claim for specific performance was being pursued by Wellfit for the purposes of re-selling the flat at a profit: a refusal to grant specific performance would deny to Wellfit what it could recover on the re-sale of the particular flat in question . It is true that the reason why the claim for specific performance was being pursued was not the same reason why Wellfit had agreed to buy the flat in the first place. But if specific performance is being sought for a reason compatible with the grant of specific performance, the fact that there has been a change in the reason why Wellfit wants the flat assigned to it is irrelevant.

8. There is no evidence before me of the current market value of the flat. Accordingly, if damages at law were to be awarded to Wellfit, those damages would have to be assessed on a date to be fixed. For these reasons, the basis of the assessment of damages at law for the confirmor’s failure in December 1990 to assign the flat to Wellfit is the market value of the flat on the date when damages would be assessed less the contract price of $4.75m.

9. Miss Yuen submitted that, when it became obvious that despite the issue of proceedings the confirmor was not going to complete the sub-sale, Wellfit should have mitigated its loss by accepting the confirmor’s repudiatory breach of the sub-sale agreement. I am not convinced that that would have had the effect of making the measure of damages the difference between the contract price of the flat and its market value when the agreement should have been terminated by the acceptance by Wellfit of the confirmor’s repudiatory breach. But even if it did, the question of mitigation of loss simply does not arise now that I have found that it was reasonable for Wellfit to hold out for an order of specific performance. In the light of that finding, there is no room for saying that Wellfit should have mitigated its loss by taking a course of action which would have resulted in specific performance no longer being available to it.

THE ADEQUACY OF DAMAGES AT LAW

10. Damages at law will enable Wellfit to reap the benefit of the significant increase in property prices since December 1990. if Wellfit intends to put the flat on the market as soon as the flat has been conveyed to it, damages at law could arguably be said to put Wellfit into as beneficial a position as it would have been in if the sub-sale agreement had been performed. That is because the date when Wellfit would have sold the flat, and the relevant date for the purpose of assessing its value, would have been the same.

11. But I do not know wheter Wellfit intends to sell the flat as soon as it can. Wellfit’s decision may well depend on its assessment of the market when an order for specific perfrormance is made. It may decide to sell the flat there and then. It may decide to hold on to the flat for a while, because it thinks it more likely than not that property price will rise further, and to let the flat out in the meantime. For all I know, it may wish to negotiate a sale of the flat back to the confirmor so that Mr. Cheung, who has lived in the flat since December 1990, can continue to live there. The point is that an award of damages would have the effect of removing all Wellfit’s options. It would be the equivalent of forcing Wellfit to exercise its option of selling the flat at the time the assessment of damages takes place. It would deny to Wellfit the option of deferring the re-sale of the flat to a time which Wellfit regarded as most opportune to sell. If the agreement had been performed, Wellfit (albeit owned by the Hunts) could have realised the value of the flat whenever it chose because it could have sold the flat at any time. If damages at law are awarded instead, Wellfit (albeit owned by KLY Nominees) can only realise the current value of the flat because its damages will be frozen by refernce to the value of the flat at the date of assessment. In that respect, an award of damages at law would not put Wellfit into as beneficial a position as it would have been in if the sub-sale agreement had been performed. Accordingly damages at law will not be an adequate remedy for Wellfit.

SHOULD SPECIFIC PERFORMANCE BE ORDERED?

12. The fact that damages are not an adequate remedy for Wellfit for the confirmor’s breach of the sub-sale agreement does not necessarily mean that specific performance of the sub-sale agreement must be ordered. Specific performance is discretionary remedy. “This does not mean that it will be granted or withheld arbitrarily; the discretion is a judicial discretion, and is exercised on well-settled principles. It means that in an action for the specific performance of a contract of the class usually enforced, the court may take into account, as a ground for refusing specific performance or granting it subject to conditions, circumstances which could not be taken into account in an action for damages for breach of contract, such as the conduct of the plaintiff, or the hardship which an order would inflict on the defendant”: Snell’s Equity, 29^th. ed., p.588.

13. I have already referred to the fact that contracts for the sale of land are a class of contract for which specific performance will usually be ordered. The only grounds on which the confirmor has wanted to allege that it is inequitable to order specific performance in this case relate to

(i) the conduct of Hunts in selling their shares in Wellfit to KLY Nominees,

(ii) the enormous profit which KLY Nominees will make as a result of acquiring the shares in Wellfit, and of Wellfit succeeding on liability, bearing in mind that its exposure in the event of Wellfit losing on liability was only to the legal costs of the action (significant though they might be), the forfeiture of Wellfit’s deposit of $475,000.00, and special damages of $117,425.00 and $13,125.00, being respectively the stamp duty which Wellfit would otherwise have had to pay and FZ’s costs of approving the bipartite assignment,

(iii) the hardship which Mr. Cheung would suffer in having to leave the flat which he has lived in with his family for the last 5 years,

(iv) the hardship which the confirmor would suffer in losing the value of the refurbishments which it mad to the flat at an approximate cost of $450,000.00, and

(v) the hardship which the confirmor has suffered by not having purchased an alternative flat for Mr. Cheung and his family to live in.

I regard all these grounds as being included in the re-re-amendments to the Defence and Counterclaim which the Court of Appeal refused, upholding Wong J.’s earlier refusal. I can discern no other grounds on which it would be inequitable to order specific performance. I therefore order specific performance of the sub-sale agreement.

14. I have, of course, not been addressed on whether any of the ground which the confirmor wished to argue would have justified refusing specific performance. But even if I had been, I think it very unlikely that I would have declined to order specific performance. It is extremely unlikely that I would have refused to order specific performance on grounds (i) and (ii): the reasons for that are the same as those which resulted in my concluding that it would quite reasonably have been open to Wellfit to conclude that the Court would order specific performance of the sub-sale agreement. Moreover, the risk which KLY Nominees assumed by its acquisition of the shares in Wellfit included the risk that property prices might fall, and was in any event the same as the risk which the Hunts would have assumed if the shares in Wellfit had remained in their hands. On the face of it, the hardship referred to in grounds (iii) and (iv) goes nowhere near far enough for depriving Wellfit of the order of specific performance to which it would otherwise be entitled: after all, the confirmor chose to redecorate the flat and to permit Mr. Cheung to live there knowing that Wellfit was seeking specific performance of the sub-sale agreement. And the hardship referred to in ground (v) does not arise as a result of the specific performance of the sub-sale agreement. It arises as a result of Mr. Cheung’s decision not to buy the two properties in which he was interested shortly after 19^th December 1990. The confirmor cannot rely on the fact that Mr. Cheung did not buy either of those flats because he would have had to borrow more than he had wanted to. The only reason why he would have had to borrow money to buy either of the flats was because, by not proceeding with the sale of the flat to Wellfit, he had deprived the confirmor of the proceeds of the sale of the flat which could have been used to pay for the flat in Grenville House or in part-payment of the flat in Rosemead.

WELLFIT’S CLAIM FOR DAMAGES

15. The order for specific performance means, of course, that Wellfit cannot be awarded damages basesd on the difference between the contract price and the current value of the flat. However, Wellfit is entitled to damages to compensate it for not having had the flat conveyed to it earlier. “The normal measure of damages is the value of the user of the land, which will generally be taken as its rental value, for the period from the contractual time for completion to the date of actual completion. This is so whether the delay is brought to an end by the voluntary action of an indolent seller or by a decree of specific performance against a recalcitrant seller”: McGregor on Damages, 15^th. ed., para. 914.

16. Wellfit’s entitlement to damages on this basis was not disputed at trial (assuming, of course, that the confirmor was found to have been in repudiatory breach of the sub-sale agreement). Indeed, it was agreed that the value of the use of the land should be ascertained by taking the notional rent for which the flat could have been let and by deducting from it the interest which would have been payable on the loan which Wellfit would have had to obtain to complete the purchase. The figures for the period up to 15^th February 1995, i.e. the day when the trial began, were agreed as follows:

Notional rent	$2,418,096.00
Less interest payable on loan	$1,348,515.86
	$1,069,580.14

However, these sums will have increased since then. Then course I should take, therefore, is to order that Wellfit’s damages for not having had the flat conveyed to it earlier be assessed by a master, even though that assessment is unlikely to take place, since I suspect that it will not be difficult for the up-to-date figures to be agreed.

OTHER ORDERS

(i) Declaration. Wellfit seeks a declaration that the confirmor was not entitled to forfeit the deposit paid by Wellfit under the sub-sale agreement. That follows, of course, from the judgment which I handed down on 25^th July 1995, and I make a declaration to that effect.

(ii) Interest on damages. I have not been addressed on the appropriate rate of interest, or from when interest should be payable. In the normal course of events, I would leave it to the parties to agree those matters, giving them liberty to apply in the event of them failing to agree. However, I do not want the parties to incur further costs if it can be avoided. I propose, therefore, to make an order nisi in relation to interest, giving the parties liberty to apply, within 14days of the handing down of this judgment, if they wish to argue against it. Technically, Wellfit’s loss was a continuing loss incurred ever since 19^th December 1990 but increasing as notional rental payments became due. However, I propose to deal with the question of interest broadly, and the order nisi I make is that the confirmor must pay interest to Wellfit on the damages to be assessed if not agreed from 1^st July 1993 at the rate determined from time to time by the Chief Justice as the rate of interest on judgment debts.

(iii) Costs. I assume that the vendor’s costs of the proceedings were dealt with when the vendor was struck out of the action, and that Wellfit does not seek from the confirmor its costs of proceeding against the vendor. In case Wellfit’s costs of proceeding against the vendor have not been expressly dealt with. I make an order nisi that there be no order in relation to those costs. At present, I see no reason why the confirmor should not pay to Wellfit Wellfit’ costs of the proceedings against the confirmor to be taxed if not agreed, and I make an order nisi to that effect. It is true that part of the trial was taken up with the two issues referred to on pp. 23-25 of my judgment which I did not in the event need to resolve, buty I do not see why Wellfit should be denied its costs attributable to those issues, because it was the confirmor’s denial that it had acted in repudiatory breach of the sub-sale agreement which caused Wellfit to put its case on those alternative footings.

1990 No. A8737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

____________

Coram : The Hon. Mr. Justice Keith in Court

_______________

R U L I N G

_______________

1. The Court of Appeal upheld, as a proper exercise of his discretion, the decision of Wong J. to refuse the confirmor leave to re-re-amend its Defence and Counterclaim. The confirmor had sought to plead two sets of facts which it said made it inequitable for the sub-sale agreement to be enforced. Those two sets of facts were:

(i) the sale by the Hunts to KLY of their shares in Wellfit, and

(ii) the hardship which Mr. Cheung would suffer in the event of specific performance of the sub-sale agreement being granted.

The effect of the dismissal of the appeal from Wong J.'s order is that the confirmor is unable to rely on these facts in order to contend that it is inequitable for the sub-sale agreement to be enforced.

2. However, that does not mean that these facts cannot be relied upon to resist Wellfit's claim for specific performance on some other ground. As it is, the confirmor wishes to rely on the fact of the sale of the shares in support of its contention that damages are an adequate remedy for the breach of the sub-sale agreement, and that specific performance should not be awarded for that reason. Is that argument precluded by the judgment of the Court of Appeal? The answer to that question turns on whether that argument is included in the re-re-amendments which Wong J. refused.

3. In my view, the argument is not included in the re-re-amendments which Wong J. refused. The Court's jurisdiction to award the equitable remedy of specific performance is triggered if the Court is satisfied that the plaintiff's remedies at law are inadequate : see Snell's Equity, 29th ed., p. 585. The argument, therefore, that damages are an adequate remedy for Wellfit for the confirmor's breach of the sub-sale agreement is an argument which has to be addressed before the Court considers whether it would be inequitable to award Wellfit the remedy of specific performance.

4. A fair reading of the plea which Wong J. refused to permit the confirmor to advance is that it related only to the question whether it would be inequitable to award to Wellfit the remedy of specific performance. Accordingly, I rule that it is open to the confirmor to rely on the sale of the shares in Wellfit to KLY in support of its contention that specific performance should not be granted because damages are an adequate remedy. It may be difficult for the confirmor to succeed in that argument. After all, it is generally thought that damages are an inadequate remedy for breaches of agreements relating to the sale of land. But that goes to the question whether the argument is likely to succeed, not to whether the confirmor is precluded from relying upon it.

5. In reaching this conclusion, I have not overlooked the increasing tendency of the courts (referred to in Spry, The Principles of Equitable Remedies, 4th ed., p. 59) to decline to treat the adequacy of damages as a jurisdictional issue. However, the explanation for that tendency, I think, is that if damages are not an adequate remedy for breaches of contracts, especially for breaches of contracts relating to the sale of land, specific performance is likely to be awarded. In other words, the dividing line between the adequacy of damages and the appropriateness of specific performance has come to be blurred because the answer on one issue is likely to provide the answer on the other. But that understandable tendency must, in my judgment, be resisted in a case in which it is necessary to keep the issues separate. This is such a case in view of the fact that the confirmor's ability to rely on the sale of the shares is limited to the issue as to whether damages are an adequate remedy for breach of the sub-sale agreement.

6. This analysis is not affected by the comment of Nazareth V.-P. that the two sets of facts which the confirmor sought to plead could not make it unconscionable to order specific performance. What Nazareth V.-P. was addressing was whether it was arguable that these facts made it inequitable to order specific performance. He was not addressing the question whether the sale of the shares meant that Wellfit's remedy in damages was adequate. In any event, Nazareth V.-P.'s comment did not form part of the ratio of the Court as a whole : although Bokhary J.A. and Liu J.A. agreed that the appeal should be dismissed, they did not say that they agreed with Nazareth V.-P.'s reasoning.

7. The matter, I think, can be tested in this way. Suppose that the confirmor chose no longer to defend the proceedings. I would still have to decide whether, in the exercise of my discretion, I should award the remedy of specific performance. In order to decide that, I would have to consider whether damages would be an adequate remedy for Wellfit. The fact that I knew from Mr. Chang's opening about the sale of the shares is not something which I could ignore. Accordingly, whether the point was taken or not, I would still have had to consider the impact of the sale of the shares on the question as to whether damages would be an adequate remedy for Wellfit. However, this argument cannot apply to the question whether the Court can consider whether the sale of the shares makes it inequitable to order specific performance. That would be tantamount to saying that (a) the amendments to the Defence and Counterclaim which were refused did not have to be pleaded at all, and (b) the hearing before Wong J. and the Court of Appeal had been conducted on a false premise.

8. Finally, neither party now proposes to call evidence on the issue relating to the sale of the shares. The only evidence which I have, therefore, is the evidence that the shares were in fact sold by the Hunts to KLY Nominees Ltd. in February 1991. The time to be spent on the issues relating to remedies, and therefore the legal costs of the issues relating to remedies, will now not be as great as was originally envisaged. This is, in my judgment, not a case in which I should order that the hearing relating to remedies should be deferred until after the proposed appeal from my judgment on liability has been disposed of.

(Brian Keith)

Judge of the High Court

Representation:

Mr. Denis Chang Q.C. and Mr. Benjamin Yu Q.C., instructed by Messrs. Herbert Smith, for the Plaintiff

Ms. Maria Yuen and Ms. Lisa Wong, instructed by Messrs. Vincent T.K. Cheung,Yap & Co., for the 1st Defendant

1990 No. A8737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

____________

Before:  The Hon. Mr. Justice Keith in Court

Dates of Hearing: 15th - 17th February, 13th, 15th - 17th & 20th March, and 3rd - 4th April 1995

Date of Handing Down Judgment: 25th July 1995

_______________

J U D G M E N T

_______________

INTRODUCTION

1. This is yet another case in which the purchaser of property did not complete the purchase by the time originally stipulated in the sale and purchase agreement.  The twist in the story is that it is claimed that the purchaser’s time for completion was extended in the course of a telephone conversation between the parties’ solicitors.  The complication is that the transaction was a confirmor transaction, and important questions concerning conveyancing practice in Hong Kong relating to confirmor transactions arise if I find that the purchaser’s time was not extended.

2. The precise facts are unusually important in this case, and I propose to set them out in some detail.  All dates in this judgment refer to 1990 unless otherwise stated.  Unless the context requires otherwise, I shall refer to the Plaintiff, the 1st Defendant and the 2nd Defendant as “the purchaser”, “the confirmor” and “the vendor” respectively. 

THE FACTS

(i)  The principal agreement.  In November 1990, Mr. Edwin Cheung decided to buy a flat in Mid-levels.  The flat was Suite L on 13th and 14th floors, 1 Robinson Road.  Two carparking spaces went with the flat.  Mr. Cheung decided to buy the flat through a company (“the confirmor”) which he controlled.  Accordingly, by a sale and purchase agreement dated 26th November (“the principal agreement”), the confirmor agreed to buy the flat from the company which owned it (“the vendor”).  The purchase price was $4.27m.  Completion of the principal agreement had to take place by 5:30 p.m. on 19th December.  Time was expressly provided to be of the essence.

(ii)  The provisional sale agreement.  Within a few days of that agreement, Mr. Cheung had decided to re-sell the flat if he could.  By 29th November, he had found a buyer, Mr. Stephen Hunt and his wife.  The Hunts were prepared to pay $4.75m. for the flat.  Accordingly, on 29th November, a provisional sale agreement for the sale of the flat to the Hunts was signed.  That provisional sale agreement required a formal sale and purchase agreement to be signed by 8th December, and it provided that the sub-sale be completed by 3:00 p.m. on 19th December.

3. The time by which completion was to take place was something which Mr. Cheung had specifically wanted to be inserted into the provisional sale agreement.  He was intending to pay the vendor from the proceeds of the sub-sale of the flat to the Hunts.  If for some reason the Hunts failed to complete the purchase, Mr. Cheung wanted to have sufficient time to make alternative arrangements so that he could complete with the vendor by 5:30 p.m. on 19th December.  The 2½ hours between the time when the Hunts would have to pay the confirmor, and the time when the confirmor would have to pay the vendor, would give Mr. Cheung the time he needed to raise the necessary finance. 

(iii)  The sub-sale agreement.  Like Mr. Cheung, the Hunts decided to buy the flat through a company which they controlled (“the purchaser”).  Accordingly, by a sale and purchase agreement between the purchaser and the confirmor dated 8th December (“the sub-sale agreement”), the purchaser agreed to buy the flat for $4.75m.  To give effect to the provision as to time in the provisional sale agreement, it provided that completion of the agreement had to take place by 3:00 p.m. on 19th December.  Time was expressly provided to be of the essence, and the agreement expressly provided in cl. 21 that it was “subject to and with the benefit of” the principal agreement.

(iv)  The solicitors. Following the signing of the provisional sale agreement on 29th November, Mr. Cheung and the Hunts instructed solicitors to act for them on the sub-sale.  Mr. Cheung instructed Messrs. Tai, Ho & Chan (“THC”) who were already acting for the confirmor on its purchase of the flat from the vendor.  The partner in charge of the file was Joseph Chan, though he was assisted by an assistant solicitor, Cecilia Cheng.  She had spent a year of her articles in the conveyancing department of a large firm of solicitors in Hong Kong, and had been admitted as a solicitor 3 months earlier in September 1990.  She had the day-to-day handling of the file, although it was Mr. Chan who always took instructions from Mr. Cheung.  The Hunts instructed Messrs. Kao, Lee & Yip (“KLY”).  The partner in charge of the file was Betty Yeung.  She was assisted by an assistant solicitor, Doris Ma, and a consultant to the firm, Doris Ting.  It was Miss Ting who had the day-to-day handling of the file.  She had been admitted as a barrister and solicitor of the High Court of New Zealand in 1986, and had worked as a conveyancing solicitor in New Zealand until she had come to Hong Kong in October 1990 (only a month or two before the events which gave rise to this action).  The solicitors acting for the vendor on the sale of the flat to the confirmor were Messrs. F. Zimmern & Co.  (“FZ”).  The solicitor with responsibility for the file was Mr. Thomas Woo.

(v)  The method of completion.  The sub-sale agreement expressly provided for the form which the completion of the sub-sale was to take.  Unless the confirmor expressly agreed otherwise (and in the event it did not), the completion of the sub-sale was to be by way of undertakings in accordance with the Law Society’s Circular No. 91/82.  That circular provided for a method of completion which made a personal meeting between solicitors for vendors and purchasers unnecessary.

(vi)  The assignment. It is the purchaser’s solicitors’ responsibility to draft the assignment assigning the property to be purchased to the purchaser.  Accordingly, it was Miss Ting who drafted the assignment for the purchase of the flat.  The draft was a tripartite assignment.  The purchaser, the confirmor and the vendor were parties to it.  There had been no provision in the sub-sale agreement as to when the draft assignment had had to be delivered to THC, but cl. 15(c) of the principal agreement had provided for the draft assignment to be delivered to FZ not less than 3 days before the date of completion.  In the event, the draft was faxed to THC at about 2:00 p.m. on the afternoon of 18th December for their approval.  It was faxed back to KLY at 10:08 a.m. on the morning of 19th December, having been approved (subject to minor amendments) by both THC and FZ.

4. Despite the confirmor’s obligation under cl. 15(c) of the principal agreement, Miss Cheng had not pressed Miss Ting for the draft assignment.  Mr. Denis Chang Q.C. for the purchaser argues that that shows that Miss Cheng was relaxed about time limits, and therefore could well have extended the time for completion by an hour or two.  On this issue, Miss Cheng’s evidence was that she had the impression from Mr. Woo that he would not enforce the strict time limit in cl. 15(c):  he had not been in touch with her to remind her that FZ had not yet received the draft assignment.  That was why she did not press Miss Ting for the draft earlier than she did, even though she believed at the time that the effect of cl. 21 of the sub-sale agreement was to require KLY to provide THC with the draft assignment not less than 3 days before 19th December.  I have no reason to doubt this evidence.  As it was, she had, on the morning of 18th December, dictated a letter to KLY which, amongst other things, asked for the draft assignment “in good time”.

5. In my view, this evidence points to Miss Cheng being relaxed as to those time limits which she regarded as unimportant.  She plainly did not regard the time limit imposed by cl. 15(c) as important.  Indeed, her evidence was that she took the view that not all clauses in an agreement for the sale of property had to be complied with strictly, provided that completion was not delayed.

6. For his part, Mr. John Griffiths Q.C. for the confirmor relies on the fact that Miss Ting did not submit a draft assignment to THC for their approval until the afternoon of 18th December.  It was that which turned out to be the ultimate cause of the temporary unavailability of the funds which the purchaser intended to use to pay for the flat.  If Miss Ting thought that she might be criticised for not submitting the draft assignment sooner, she might have been tempted to pretend that the time for completion had been extended for an hour or two. 

7. I do not think that Miss Ting thought that she might be criticised for not submitting the draft assignment sooner.  Whatever the effect of cl. 21 of the sub-sale agreement was, I do not think that Miss Ting thought that it had the effect of imposing an obligation on KLY to provide THC with a draft assignment in sufficient time to enable THC to comply with the confirmor’s obligations under cl. 15(c) of the principal agreement.  All that Miss Ting would have thought she had to do was to send the draft assignment to Miss Cheng for approval in sufficient time to ensure that completion of the sub-sale could take place by the appointed date and time.  Indeed, by the time she faxed the draft assignment to THC, she had not received Miss Cheng’s letter asking for it “in good time”.  That letter was not despatched until 3:11 p.m., it did not arrive at KLY until 4:15 p.m., and a copy of it was not faxed to KLY until 5:18 p.m.  I accept Miss Ting’s evidence that it was not uncommon in Hong Kong for the draft assignment to be sent to the confirmor’s solicitors on the day before completion was due to take place, even though

(a)  it had to be approved by two firms of solicitors,

(b)  there was no guarantee that amendments would not be required to it or that, for one reason or another, the approval of it might be delayed,

(c)  an appointment would have to be made with the Hunts for them to come to KLY’s office to execute the assignment once it had been approved and engrossed, and

(d)  Miss Cheng’s evidence  (which I accept) was that it was more usual for the draft assignment to be sent for approval a couple of days before the date fixed for completion.

(vii)  The split cheques.  Sums totalling 10% of the amount payable for the flat under the sub-sale agreement had been paid by 8th December.  Accordingly, the balance of the purchase price which the purchaser had to pay on completion was $4,275,000.00.  However, the sub-sale agreement entitled the confirmor to require the purchaser to pay that amount by split cheques or cashier orders, provided that at least 48 hours prior notice of that requirement was given.  No such notice had been given by THC, but by a letter faxed to THC on the afternoon of 18th December, Miss Ting asked how the cheques for the balance of the purchase price payable on completion should be drawn.  The fax which she received from THC at 10:08 a.m. on the morning of 19th December, in addition to returning the draft assignment, informed her that that information would be given in due course.  It was not until 11:54 a.m. that morning that the proposed break-down of the cheques or cashier orders was faxed to her.  That is said by the purchaser to be another example of Miss Cheng’s relaxed attitude to time limits.

8. I reject that suggestion.  The sub-sale agreement provided that the confirmor was to be responsible for a proportion of the costs (not exceeding $130,000.00) of renovating the common areas of the building in which the flat was.  However, it subsequently transpired that this sum did not include the cost of renovating the main entrance to the building.  The correspondence shows that Miss Ting discovered that on 14th December when she received the managing agents’ letter to that effect.  She telephoned Miss Cheng about it on 15th December.  Accordingly, since 15th December, Miss Cheng knew that there was a possibility that the purchase price might have to be reduced to reflect that additional cost.  She did not, of course, know whether the confirmor or vendor would agree to that, or how much the additional cost was likely to be, and she was not therefore in a position to identify how the balance of the cheques or cashier orders for the purchase price should be split.  Not surprisingly, since it was the purchaser who was seeking a reduction of the purchase price, she left it to Miss Ting to find out how much the repair costs were likely to be.  It was only at 5:03 p.m. on 18th December that Miss Ting faxed Miss Cheng to suggest that the confirmor agreed to pay $8,000.00 towards the additional cost.  By 5:57 p.m., Miss Cheng had faxed Mr. Woo to get the vendor to agree to a reduction of $8,000.00.  Initially, the vendor refused, but as soon as Miss Cheng was informed by fax on the morning of 19th December that the vendor was after all prepared to reduce the purchase price by $8,000.00, she informed Miss Ting of that in the fax of 11:54 a.m., which also informed her how the cheques or cashier orders for the balance of the purchase price should be split. 

(viii)  The documents relating to the mortgage.  The purchaser’s purchase of the flat was being financed by the Hang Seng Bank (“the Bank”).  It was going to lend the purchaser $4m., secured by a mortgage over the flat, and by the Hunts’ guarantee of the performance by the purchaser of its obligations under the mortgage.  When Miss Ting received at 10:08 a.m. on the morning of 19th December the draft assignment duly approved, she did two things.  First, she arranged for the Hunts to come to her office at 11:30 a.m. to execute the various documents, viz. the assignment, the mortgage, and the documents relating to the mortgage, including the formal request to the Bank to issue a cashier’s order for $4m. to KLY.  Secondly, she telephoned her contact at the Bank, Lydia Wong, to advise her that completion was due to take place that day, and that the $4m. was required by 3:00 p.m.

9. However, before the Bank could issue the cashier’s order, it had to have received a “report” letter from KLY, enclosing the various documents relating to the mortgage duly signed by the Hunts.  Miss Ting faxed that report letter to the Bank at 12:58 p.m.  It could not have been sent much before then, because the various documents relating to the mortgage had only just been executed by the Hunts, and the report letter had had to be signed by a partner of KLY.  Mr. Griffiths relies on the fact that the Hunts were not asked to come to the office to execute the documents relating to the mortgage until 11:30 a.m. on the morning of 19th December.  It was that which turned out to be one of the proximate causes for the temporary unavailability of the funds from the Bank.  If the documents relating to the mortgage had been executed by the Hunts sooner, the report letter would have been with the Bank that much quicker.  If Miss Ting thought that she might be criticised for not getting the Hunts to execute the documents relating to the mortgage sooner, and therefore for not getting the report letter to the Bank quicker, she might have been tempted to pretend that the time for completion had been extended by an hour or two, in order to avoid being criticised for leaving things to the last minute. 

10. I do not think that it ever crossed Miss Ting’s mind that she might be criticised along these lines.  She knew that it would not have made sense for the Hunts to come to the office to execute documents relating to the mortgage if they could not at the same time execute the assignment.  Since she did not receive the fax approving the assignment until 10:08 a.m. on the morning of 19th December, it would not have occurred to her that arranging for the Hunts to come to the office at 11:30 a.m. would be a matter of criticism (even though the evidence of Christopher Chan and Angela Lee, which I accept, was that prudence required the documents to be signed earlier than that).  Moreover, KLY was acting for the Bank in connection with the security for the $4m. being lent by the Bank to the purchaser.  Miss Ting had every reason to think, therefore, that even if the timetable was getting tight, the Bank would ensure that KLY would receive the cashier’s order for $4m. in KLY’s favour in sufficient time to enable KLY to draw cheques on its clients’ account for the balance of the purchase price and get them to THC by 3:00 p.m. 

(ix)  The delay in the receipt of the report letter.  At about 12:30 p.m., Miss Ting telephoned Miss Wong again to inform her that the documents relating to the mortgage had been executed, and that she was simply waiting for a partner to sign the report letter.  Within a minute or two of the report letter being faxed to the Bank at 12:58 p.m., she again telephoned Miss Wong to tell her that the report letter had been sent.  It was at this point that the fickle hand of fate intervened in the transaction.  Miss Wong was not in, and Miss Ting left an urgent message for Miss Wong to return her call.  Between 1:00 p.m. and 2:00 p.m., Miss Ting made several calls to the Bank, at no time reaching Miss Wong, but being told that the Bank had not got the fax of the report letter.  At about 2:15 p.m., Miss Wong returned Miss Ting’s call.  She confirmed that the Bank had not received the fax of the report letter, and Miss Ting told Miss Wong that she would send it again.  She did so 2:18 p.m.  At 2:25 p.m., Miss Wong telephoned Miss Ting again.  She said that she still had not received the fax of the report letter, and during this conversation it transpired that the report letter had been faxed to the wrong department in the Bank.  Miss Wong gave Miss Ting the fax number of the correct department in the Bank, and the report letter was faxed to that number at 2:29 p.m. 

(x)  The telephone conversation at 2:30 p.m.  By this time, Miss Ting realised that there was a possibility that the Bank would not be able to get the cashier’s order to KLY in sufficient time to cover the cheques to be drawn on KLY’s clients’ account for the balance of the purchase price and to get them to THC by 3:00 p.m.  She decided to telephone Miss Cheng to ask her for an extension of the 3:00 p.m. deadline.  She intended to explain to Miss Cheng why there was a chance that the deadline would not be met, and to reassure Miss Cheng that that did not mean that the purchaser was not going to complete.  What was said in that telephone conversation is the central issue of fact which I must decide.

(xi)  Miss Ting’s account of the telephone conversation.  Miss Ting’s evidence was that she told Miss Cheng that KLY was running late, and that they would probably not be able to complete by 3:00 p.m. because they were still awaiting funds from the mortgagee.  She said that they would send the cheques over as soon as possible.  However, before she had the chance to ask Miss Cheng for a formal extension of time, Miss Cheng interrupted her, and told Miss Ting that she should send the cheques over as soon as she could, as they still had to complete with the vendor.  It was the fact that Miss Cheng had referred to the confirmor’s obligation to complete with the vendor which made Miss Ting think that Miss Cheng was saying that the 3:00 p.m. deadline did not have to be adhered to:  it was sufficient for the cheques to arrive in time for the confirmor to complete with the vendor.  Miss Ting’s evidence was that because Miss Cheng was anxious to receive the cheques in time for completion with the vendor to take place, she told Miss Cheng, by way of reassurance, that THC would have the cheques by 5:00 p.m.  Miss Cheng said nothing in response. 

11. Miss Ting’s reassurance that the cheques would arrive by 5:00 p.m. is important.  If she gave Miss Cheng that reassurance, the fact that Miss Cheng did not object to it is consistent only with the purchaser’s time for completion having been extended in the course of this conversation.  After all, if Miss Cheng was not extending the time for completion, she would have told Miss Ting that Miss Ting had to adhere to the 3:00 p.m. deadline until she had spoken to Mr. Chan to find out if Mr. Cheung was prepared to extend or vary the deadline.  In those circumstances, it is instructive to see how Miss Ting dealt with the point in documents which she subsequently made or put her signature to:

(a)  Miss Ting made a note of the conversation a couple of hours later.  It did not refer to her having told Miss Cheng that THC would have the cheques by 5:00 p.m.  The same is true of a letter sent later that afternoon to THC, which Miss Yeung drafted having spoken to Miss Ting to get the facts from her.  Miss Ting’s evidence was that she did not regard that as important at the time, and that it was only two days later on 21st December that she recalled the reassurance which she had given to Miss Cheng about 5:00 p.m.  She did not think that it would be ethical to add a reference to that fact to her note, so she made a note of it elsewhere.  She cannot now recall where that note is now. 

(b)  On 9th April 1991, she swore an affirmation in connection with the vendor’s application to strike out the Statement of Claim against it.  In it, Miss Ting affirmed:  “I confirmed that such completion will be at 5:00 p.m.”  At first blush, that looks as if Miss Ting was only saying that she told Miss Cheng that she knew that time for the completion of the principal agreement was 5:00 p.m.  However, her evidence was that that was not what her affirmation was intended to mean:  it was intended to mean that the cheques would be with Miss Cheng by 5:00 p.m.  I have no reason to doubt that.  I suspect that the person who drafted the affirmation for Miss Ting was under the impression that completion of the principal agreement had to be by 5:00 p.m.:  that was the mistake which had been made by whoever had drafted the Statement of Claim (see para.14 (ii)).  The affirmation was therefore drafted on that basis, and Miss Ting did not pick up the error when she read it through before affirming it.

(c)  There was no reference at all to Miss Ting having told Miss Cheng that THC would have the cheques by 5:00 p.m. in Miss Ting’s witness statement dated 8th March 1993.  Her explanation for its omission was that she did not have in front of her when she signed the statement the note which she had made on 21st December.  Without looking at that note, she could not then recall the context in which 5:00 p.m. had been mentioned.  She was in a hurry to sign the statement, because 8th March 1993 was the date on which the statement had to be served if the purchaser was to comply with an “unless” order which had previously been made.  She therefore signed the statement because she thought it could subsequently be amended.  In due course, an amended witness statement was served which incorporated the reassurance about THC having the cheques by 5:00 p.m. 

12. Whether or not the time for completion was extended in this conversation, I do not accept Miss Ting’s evidence about the reassurance she claims she gave to Miss Cheng.  Miss Ting struck me as a highly intelligent woman, and I do not believe that the importance of the reassurance, coupled with the absence of any objection to it from Miss Cheng, would have been lost on Miss Ting.  Her failure to refer to the reassurance in a note she made a couple of hours later is, in my judgment, explicable only on the footing that she never gave to Miss Cheng the reassurance which she claims.  She herself admitted that she wanted to record in the note the important features of the conversation, and that by the time she made her note she knew that it was possible that the confirmor might not change its mind about rescinding the sub-sale agreement, that in those circumstances there was the possibility of litigation, and that it was important for her to record her complete and accurate recollection of what had been said.

13. Nor do I believe that Miss Ting, if she had given the reassurance to Miss Cheng which she claims, would have had difficulty in remembering in March 1993 the context in which 5:00 p.m. was mentioned.  This litigation must have been a worry for Miss Ting ever since 19th December.  She must have known that the factual issue which the case raised depended entirely on her recollection of her conversation with Miss Cheng being accepted.  She must have replayed that conversation in her mind many times.  I find it difficult to believe that in these circumstances she would have been reluctant in March 1993 to commit herself to the context in which 5:00 p.m. was mentioned without checking the note she had made on 21st December (which she claims still existed then).

14. There is one other part of Miss Ting’s evidence relating to this telephone conversation which I should mention.  I have already said that she claims that it was Miss Cheng who referred to the confirmor’s obligation to complete with the vendor.  That is important because Miss Ting’s evidence was that it was that which made her think that the 3:00 p.m. deadline did not have to be adhered to.  However, the note which Miss Ting made at 4:30 p.m. does not refer to Miss Cheng as saying that at all.  The note records Miss Ting as referring to the confirmor’s obligation to complete with the vendor.  When that was pointed out to her in cross-examination, she reiterated that it was Miss Cheng who had first referred to the confirmor’s obligation to complete with the vendor, and she sought to explain away the note by saying that she had repeated what Miss Cheng had said.  At first blush, Miss Ting’s failure to refer in the note to Miss Cheng having referred to the confirmor’s obligation to complete with the vendor is explicable only on the footing that Miss Cheng did not refer to it at all.  However, Miss Cheng agrees that it was she who mentioned the confirmor’s obligation to complete with the vendor.  Accordingly, although Miss Ting’s failure to refer to it in her note is surprising, the fact is that it is common ground between Miss Ting and Miss Cheng that Miss Cheng said something about the confirmor’s obligation to complete with the vendor. 

15. Miss Ting admits that she did not inform either Miss Ma or Miss Yeung at the time about her conversation with Miss Cheng.  I regard that as a strong indication that Miss Ting believed that the deadline had been extended.  There would have been no need to tell them about the conversation if Miss Cheng had extended the time, because a problem would only have arisen if it turned out that completion of the sub-sale might not have been possible even by the extended time, and there was every chance that the cheques could have been got to THC in time for THC to get the relevant ones to FZ by 5:30 p.m.  On the other hand, if Miss Ting had believed that Miss Cheng had not extended the time for completion, I do not believe that she would simply have hoped for the best, done nothing and decided that, if the cashier’s order for $4m. did not arrive from the Bank in time for the cheques to be delivered to THC by 3:00 p.m., she would pretend that time had been extended.  Miss Ting struck me as being far too intelligent to be tempted to resort to that.  I think that she would have informed Miss Ma or Miss Yeung of the problem, either in the hope that one or other of them would speak to someone more senior in THC than Miss Cheng, or to ask whether it was possible for KLY to provide bridging finance for an hour or two.

(xii)  Miss Cheng’s account of the telephone conversation.  Miss Cheng’s evidence was that Miss Ting told her that they may not be able to get the cheques to THC by 3:00 p.m.  Miss Cheng told her that KLY better had, as THC had to forward them to FZ before completion.  She said that she did not ask Miss Ting what the problem was because there was nothing she could do about it until she had taken Mr. Cheung’s instructions.  Miss Cheng made a note of the conversation at about 4:45 p.m. that afternoon, and there is nothing inconsistent between that note and her evidence.

16. Miss Cheng admits that she did not inform Mr. Chan at the time about her conversation with Miss Ting.  I regard that as an indication that she believed that she had relaxed the purchaser’s deadline for the delivery of the cheques.  If she had believed that she had extended the purchaser’s deadline, she would, I think, be more likely to have kept quiet about it.  That would either have been because she would have thought that it was a matter of little consequence, the important thing being that THC got the cheques in sufficient time to enable them to complete the principal agreement by 5:30 p.m., or because she would have realised almost immediately that she should not have extended the deadline without first asking Mr. Chan to obtain Mr. Cheung’s express instructions.  On the latter hypothesis, she would have realised that no harm would have come from her relaxation of the time limit if the purchaser was able to meet the 3:00 p.m. deadline after all, or if the purchaser was able to complete in sufficient time not to put Mr. Cheung’s ability to meet the 5:30 p.m. deadline into jeopardy.

17. Moreover, her evidence was that Mr. Chan had told her that the 3:00 p.m. deadline had been inserted in the provisional sale agreement on Mr. Cheung’s instructions.  She assumed that Mr. Cheung had given instructions for that to be done so that he had time to make arrangements to raise the necessary finance - in the event of the purchaser not completing in time - in order to meet the 5:30 p.m. deadline with the vendor.  Accordingly, if she had believed that she had not extended the time, she would, I think, have been anxious to let Mr. Cheung know via Mr. Chan that the purchaser was concerned that it might not be able to make the 3:00 p.m. deadline.  Although she knew that Mr. Cheung was a director of various companies, including companies concerned with property investment, she had no reason to suppose that he could simply write cheques in favour of FZ for the amount required to complete the purchase.  She would therefore have wanted him to be warned of the possibility of having to raise alternative finance quickly.

(xiii)  Subsequent events that afternoon.  At about 3:05 p.m., Mr. Chan told Miss Cheng that nothing had arrived by then from KLY.  He asked her to check what was going on at their end.  Miss Cheng telephoned Miss Ting, but was not able to speak to her because her line was engaged.  When Miss Cheng informed Mr. Chan of that, he told her that Mr. Cheung would be rescinding the sub-sale agreement.  A fax was sent to KLY at 3:24 p.m. giving notice of the rescission of the sub-sale agreement, and the forfeiture of the deposits already paid totalling $475,000.00.  Thereafter, various attempts were made by KLY to persuade THC that the 3:00 p.m. deadline had been extended, and to obtain the confirmor’s instructions to proceed with the sale, but these attempts were unsuccessful. 

18. I make three comments only on the subsequent events of that afternoon:

 (a)  At 4:48 p.m. that afternoon, THC received a package from KLY containing cheques for the balance of the purchase price split as requested together with the assignment duly executed on the purchaser’s behalf.  THC refused to accept the package in view of the earlier rescission of the sub-sale agreement. 

 (b)  Mr. Cheung was able to raise alternative finance to enable the confirmor to complete with the vendor.  THC was able to prepare a tripartite form of assignment which FZ approved, and completion of the principal agreement took place at about 5:30 p.m. that afternoon.

 (c)  But for one point, and for the comments I have already made, I have not been able to discern anything said or done by anyone later that afternoon inconsistent with their version of what was said in the telephone conversation between Miss Ting and Miss Cheng. 

19. The exception relates to when Miss Cheng first told Mr. Chan about her conversation with Miss Ting.  She did not tell Mr. Chan about it at 3:05 p.m. when he asked her to find out what was going on at KLY.  She did not even tell him about it when Mr. Chan told her that Mr. Cheung would be rescinding the sub-sale agreement.  It was only when Mr. Chan spoke to her again at about 3:30 p.m., and told her that he had received a call from Miss Ting saying that Miss Cheng had granted her an extension of time that she told Mr. Chan for the first time about her conversation with Miss Ting.

20. I regard that as highly significant.  If Miss Cheng had believed that she had not extended the deadline, she would, I think, have been overwhelmingly likely to tell Mr. Chan about her conversation with Miss Ting when she spoke to him at 3:05 p.m.  On Miss Cheng’s own evidence, Mr. Chan wanted to know if there was any reason for the delay.  If she had believed that she had not said anything in her conversation with Miss Ting for which she could be criticised, she would have told Mr. Chan that half an hour or so earlier Miss Ting had told her that KLY might not be able to get the cheques to THC by 3:00 p.m.  All the more so when she spoke to Mr. Chan having failed to get in touch with Miss Ting.  Since she had not been able to speak to Miss Ting again, all the more reason then to tell him about their conversation earlier. 

(xiv)  Conclusions. I have already explained why I reject Miss Ting’s evidence about the reassurance which she claims she gave to Miss Cheng that THC would have the cheques by 5:00 p.m.  However, apart from that, I accept Miss Ting’s evidence about her conversation with Miss Cheng at 2:30 p.m.  Miss Cheng’s paramount concern was to ensure that the confirmor would be in a position to complete the principal agreement by 5:30 p.m.  As I have already pointed out, it is common ground that it was Miss Cheng who first referred in the telephone conversation to the confirmor’s obligations to complete with the vendor.  Her attitude towards her compliance with cl. 15(c) of the principal agreement shows that she was relaxed about those time limits which she regarded as unimportant.  That is not to say that she regarded the time for completion of the sub-sale as unimportant.  But when Miss Ting telephoned her at 2:30 p.m. to give her the unexpected news that KLY might not be able to make the 3:00 p.m. deadline after all, I find that her reaction was to think what effect that would have on the confirmor’s ability to complete the principal agreement in time.  Since it would have no effect on the confirmor’s ability to complete the principal agreement in time if the cheques arrived only a few minutes later, she told Miss Ting to send the cheques over as soon as possible as THC had to complete with the vendor, even though she may not have had authority to tell Miss Ting that. 

21. Having seen her give evidence, Miss Cheng struck me as someone who might be prompted to act instinctively at times.  I find that she did not add that Miss Ting had to get the cheques to THC by 3:00 p.m.  Had she added that, both she and Miss Ting would have realised that no extension of time had been granted.  However, for the reasons I have given, their subsequent conduct (in not mentioning the fact of the conversation to Miss Ma, Miss Yeung and Mr. Chan) strongly suggests they both believed that time had been extended.  Indeed, I find that Miss Cheng did not tell Mr. Chan about her conversation with Miss Ting (until Mr. Chan made it clear to her that he knew that a conversation had taken place) because she had come to realise that she should not have granted an extension of time earlier, and was hoping that the cheques would arrive in sufficient time to make it unnecessary for Mr. Cheung to consider rescinding the sub-sale and to raise alternative finance.

22. I was for a while troubled by the fact that Miss Ting did not make a note of her conversation with Miss Cheng until 4:30 p.m., despite the fact that it was her practice to make contemporaneous notes of conversations over the telephone.  That suggested either that she did not regard her conversation with Miss Cheng as important or that she wanted to conceal its existence.  However, on whichever view is taken of the conversation, it was an important one, and one which she would not want to conceal.  As for its importance, it had the effect, on Miss Ting’s version of it, of extending the time for completion, and on Miss Cheng’s version of it, of making it necessary for Miss Ting to bring it to the attention of Miss Ma or Miss Yeung so that they could either use their authority to persuade THC to grant a short extension of time or permit KLY’s own funds to be used as bridging finance for an hour or two.  As to whether Miss Ting wanted to conceal the fact of the conversation, she would not have wanted to, because either time had been extended or she was going to pretend that it had been extended if the money from the Bank did not arrive by 3:00 p.m.  In the event, therefore, I regard Miss Ting’s failure to make a contemporaneous note as neutral on the crucial question as to what was said in the course of the telephone conversation.

23. I bear in mind, of course, that the longer THC had to wait for the cheques, the more difficult it would become for the confirmor to complete the principal agreement with the vendor by 5:30 p.m.  But I find that, not surprisingly, those practical difficulties did not register with Miss Cheng during her short and unexpected conversation with Miss Ting at 2:30 p.m.  Miss Cheng had no reason to think that the cheques would not arrive within a sufficient time after 3:00 p.m. to prevent the completion of the principal agreement from proceeding without difficulty. 

THE EFFECT OF THESE FINDINGS OF FACT

24. On these facts, I find that the purchaser’s time for completion of the sub-sale agreement was extended from 3:00 p.m. to such time as would not prevent the confirmor from being able to complete the principal agreement by 5:30 p.m.  In my view, the receipt by THC at 4:48 p.m. of a package containing cheques for the balance of the purchase price split as requested together with the assignment duly executed on the purchaser’s behalf gave the confirmor sufficient time to complete the principal agreement by 5:30 p.m. had it not purported to rescind the sub-sale agreement.  It follows that the purported rescission of the sub-sale agreement at 3:24 p.m. was no effect, because the extended time for completion of it had not yet expired.  It also follows that it was the confirmor who was in repudiatory breach of the sub-sale agreement in refusing to complete when the cheques and the duly executed assignment were tendered to THC at 4:48 p.m.

THE PURCHASER’S ALTERNATIVE CASE

25. In case it was found at trial that the time for completion of the sub-sale agreement had not been extended, the purchaser’s case was put on two alternative footings:

(i)  Upon its proper construction, the sub-sale agreement required the confirmor (a) to pass a good unencumbered title to the purchaser, and (b) to give the purchaser vacant possession of the flat, by the time fixed for completion.  The confirmor was unable to do that, because (a) it was not going to acquire title to the flat until the principal agreement had been completed (which might not have been until 5:30 p.m.), (b) the title to the flat was not going to be unencumbered until the vendor’s mortgage had been redeemed (which might not have been until a few days later), and (c) it was not going to be able to give vacant possession of the flat until its solicitors had obtained the keys to the flat from the vendor’s solicitors (which again might not have been until 5:30 p.m.).  Since the confirmor was unable to complete the sub-sale agreement by the time fixed for completion, or by the time it purported to rescind the sub-sale agreement, the purported rescission was of no effect.

(ii)  Even if the confirmor was not obliged to be able to pass a good and unencumbered title to the flat and to give vacant possession of it by the time fixed for completion, it was, in all the circumstances of the case, unconscionable for the confirmor to treat the sub-sale agreement as rescinded on the ground of the purchaser’s failure to complete in time. 

26. My finding of fact that the time for completion of the sub-sale agreement was extended means that I do not need to address these questions.  Although they were extensively argued before me, I do not want to lengthen further this judgment by a consideration of issues which would only have to be decided if my findings of fact are successfully challenged on appeal.  I know that Mr. Chang and Mr. Griffiths took the view that my decision on the first of these two questions would give guidance to conveyancing solicitors in Hong Kong as to the handling of confirmor transactions.  But I am reluctant to embark on an examination of issues, however important they may be, which do not affect the outcome of the case.  In the event of a successful challenge to my findings of fact, it will be open to the Court of Appeal to remit the case back to me for me to decide the issues which my findings of fact have rendered unnecessary.

THE UNPLEADED DEFENCE

27. The confirmor wished to argue that Miss Cheng had no authority to extend the time for completion of the sub-sale agreement.  However, it had not pleaded that defence in its Defence and Counterclaim.  On 3rd February 1995, it applied for leave from Wong J. to re-re-amend its Defence and Counterclaim, inter alia, to plead Miss Cheng’s lack of authority.  Wong J. refused that application.  The confirmor was minded to appeal against that refusal, but the trial of the action began before any Notice of Appeal had been lodged. 

28. As it was, the additional evidence which the parties would have had to call on the issue of Miss Cheng’s authority was minimal and self-contained.  In view of that, the course which I decided to adopt was to permit the parties to call the evidence relating to the issue of Miss Cheng’s authority.  I would then make such findings of primary fact as I felt able to on the evidence, though I would not state any conclusion which I might have reached on whether, on the primary facts, Miss Cheng had been authorised to extend the time for completion of the sub-sale agreement.  That was because I could not give effect to any conclusions I reached on the issue in view of the fact that the allegation remained an unpleaded one.  The advantage of proceeding in this way was that, if the confirmor decided to appeal from the order of Wong J., and the appeal was allowed, the Court of Appeal would not have to remit the case back to me for the evidence on the issue of Miss Cheng’s authority to be given, and for findings to be made on it.  The Court of Appeal could decide the issue of want of authority for itself on the basis of my findings of primary fact. 

29. However, since I reserved judgment, the confirmor’s appeal against Wong J.’s order has been heard and dismissed.  There is now no route by which the allegation of lack of authority on Miss Cheng’s part can be resurrected.  It is therefore wholly unnecessary for me to make any findings of fact on this issue, and I decline to do so.

THE CLAIM FOR SPECIFIC PERFORMANCE

30. The primary remedy which the Plaintiff (“Wellfit”) seeks is specific performance of the sub-sale agreement.  That is not surprising.  The flat has increased considerably in value since December 1990, and the damages which Wellfit will recover (both equitable damages in lieu of specific performance, and damages at common law) may not adequately compensate Wellfit for the loss of that windfall.  However, specific performance is a discretionary remedy.  The confirmor wishes to allege two sets of facts occurring after the confirmor’s purported rescission of the sub-sale agreement, which Mr. Griffiths claims would have a significant impact on the exercise of the Court’s discretion to order specific performance.  Those allegations are as follows:

(i)  On 21st December, Wellfit caused the writ in this action to be registered against the flat as a lis pendens.  The confirmor has therefore not been able to sell the flat.  Accordingly, Mr. Cheung has been living in the flat himself and has spent about $450,000.00 decorating it.  But for the lis pendens, the confirmor would have sold the flat, and not spent money on its decoration.

(ii)  In February 1991, the Hunts agreed to sell their shares in Wellfit to a company controlled by the partners of KLY, and were paid by KLY sums equivalent to their lost deposit.  The effect of that was that they were, for all practical purposes, no longer interested in the action.  They had the finance to proceed with the purchase of another property, and it was KLY who had the risks and the rewards of the litigation.  If specific performance of the agreement is ordered, it is therefore KLY which will reap the benefit of the flat’s increase in value.

31. However, these allegations cannot be made by the confirmor.  That is because they were not originally pleaded in the Defence and Counterclaim, and the confirmor therefore sought leave to amend its pleading further to allege them.  This application also came before Wong J. on 3rd February 1995.  He refused to grant leave for this amendment to be made, and the Court of Appeal has now dismissed the confirmor’s appeal from that part of Wong J.’s order as well.

32. Does the fact that these allegations cannot be made by the confirmor mean that I cannot take them into account?  I do not think that it does.  I have no doubt that I should take into account the fact that the Hunts sold their shares in Wellfit to KLY.  That is because Mr. Chang referred to that fact when he opened Wellfit’s case to me on the first day of the trial.  It is true that he told me then that the confirmor had been refused leave to amend its Defence and Counterclaim further to plead the facts relating to the purchase.  He told me that because he wanted me to know why it was that he would not be calling either Mr. or Mrs. Hunt as witnesses.  No doubt Mr. Chang, properly conscious of his duty not to mislead the Court, did not want me to proceed on the false assumption that Wellfit was still the Hunts’ company.  But I cannot ignore what I was told.  Even if the confirmor had never intended to rely on the purchase of the shares in Wellfit by KLY, I would nevertheless have had to give effect to it if I thought it right to do so once I had been told about it. 

33. However, I did not hear all the evidence relating to the sale of the shares in Wellfit to KLY.  The only evidence I had was the production of the documents which effected the sale.  Mr. Chang told me that there was evidence which he would have called on the issue had the allegation been properly pleaded.  Although Mr. Griffiths told me that he would not object to Mr. Chang calling Mr. Emmanuel Kao (the senior partner of KLY who had been in Court for much of the trial), even though Wellfit’s case had closed by then, I do not hold Mr. Chang’s reluctance to do so against him at all.  The proposal to call evidence relating to the allegation (despite the fact that the confirmor had been refused leave to plead it) was sprung on Mr. Chang, and he did not have sufficient time to consider what evidence, if any, he wanted to call on the issue.  Wellfit must now have the chance to call such evidence as it wishes. 

CONCLUSION

34. For these reasons, there must be judgment for Wellfit on its claim in view of the confirmor’s repudiatory breach of the sub-sale agreement.  However, I direct that a further hearing takes place at which both Wellfit and the confirmor may (a) call such additional evidence as they wish on the impact of the sale of the shares in Wellfit to KLY in February 1991 on Wellfit’s claim for specific performance of the sub-sale agreement, and (b) make further submissions to me on that issue.  It will also be open to Wellfit to argue, if it wishes, that the true effect of the decision of the Court of Appeal is to prevent me from denying specific performance to Wellfit merely on the basis of the sale of Wellfit’s shares:  it is possible that the view expressed by Nazareth V.-P. on p.5 of the transcript of his judgment is open to that interpretation.  I leave it to the parties to agree the procedure to be adopted (for example, whether the statements of any witnesses of fact need to be exchanged, discovery and inspection of documents, and an estimate of the length of the hearing), but I give both parties liberty to apply for directions in the event of a failure to agree on their part.  I shall deal with the costs of the action when I have given judgment on Wellfit’s claim for specific performance and on the other remedies sought.

35. Finally, the time which has elapsed since I reserved judgment is regretted.  However, the indulgence which I granted counsel in permitting the trial to be interrupted to enable them to fulfil their other commitments and to prepare their closing submissions meant that the trial itself was very disjointed.  For that reason, it has taken me longer than would otherwise have been the case to draw all the strands of the evidence together.  Matters were not helped by the fact that I went on leave within 10 days of the conclusion of the trial.  Moreover, I was told at a post-trial hearing on 30th May 1995 that the confirmor’s appeal from Wong J.’s order of 3rd February 1995 was to be heard on 21st June 1995, and I decided after that hearing that I would not hand down my judgment until judgment had been given on the appeal:  only then would I know the full extent of the issues on which it would be necessary for me to make findings of fact.