CHEUNG YUET KIU v. NEW FUNG DEVELOPMENT LTD. and CHUNG TIM FAT (Third Party)

HCA004660A/1997

HCA4660/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

ACTION NO. 4660 OF 1997

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BETWEEN
	CHEUNG YUET KIU	Plaintiff
	AND
	NEW FUNG DEVELOPMENT LIMITED	Defendant
	and
	CHUNG TIM FAT	Third Party

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Coram : Hon Nguyen, J. in Chambers

Date of Hearing : 24 April 1998

Date of Delivery of Judgment : 24 April 1998

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J U D G M E N T

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1. On 13th November 1996, the Defendant and the Third Party signed a Provisional Sale and Purchase Agreement to buy a flat in Kowloon. The completion date under that Provisional Sale and Purchase Agreement is said to be:

"Completion shall take place on 28 February 1997 or within 21 days from the date of notification of assessment of premium issued by the Director of Housing, whichever is the latest."

2. On 26th November 1996, the parties signed a Formal Agreement of Sale and Purchase, with both sides being represented by solicitors. In Clause 33 of that Agreement, it is stated that the Agreement supersedes the Provisional Agreement dated 13th November 1996. The completion date under the Formal Agreement is specified in the 3rd Schedule, and is, in fact, the same as what was specified in the Provisional Sale and Purchase Agreement, namely "28 February 1997, or within 21 days from the date of notification of assessment of premium issued by the Director of Housing, whichever is the later".

3. On 18th January 1997, the Defendant entered into another Sale and Purchase Agreement with the Plaintiff to sell to the Plaintiff the same property at a higher price, thereby making a profit. On 10th February 1997, a letter was signed by a representative of the Housing Department assessing the premium payable to lift the restriction on alienation of the property. The said letter was not posted by the Housing Department until 13th February 1997.

4. On 17th February 1997, the Third Party received a notice from the post office to go and collect the letter from the Housing Department, and two days later, on 19th February, the Third Party collected the letter from the post office. On the following day, 20th February 1997, the Third Party, by his solicitors' letter, notified the Defendant of the fact of assessment of the premium by the Director of Housing. In fact, the solicitors, on 20th February, enclosed a copy of the letter from the Housing Authority to the solicitors acting for the Purchaser - the Defendant. On 27th February 1997, the Defendant informed the Plaintiff of the assessment of the premium by the Housing Department.

5. There then followed some correspondence between the solicitors for the Third Party and the solicitors for the Defendant regarding the meaning of Clause 36 in the Formal Agreement. Clause 36 deals with the matters related to the premium, namely, who should pay the premium, and what should happen if, by the completion date, the Housing Authority had not finalised their assessment of the premium.

6. In Clause 36, it is stated:

"Provided that if the Hong Kong Housing Authority has not finalised their assessment of the Premium payable on or before the completion,"

- which is agreed was 28th February -

"then the Vendor shall give a written notice to the Purchaser to that effect and notwithstanding herein otherwise provided, the completion shall be postponed to 21 days after the date of notification of assessment of premium issued by the Director of Housing and that such notice has been given by the Vendor's Solicitors to the Purchaser's Solicitors that the Premium has been assessed by the Hong Kong Housing Authority."

7. On 3rd March 1997, Albert Leung & Co, the solicitors for the Third Party, wrote to the solicitors for the Defendant and pointed out that the notification of assessment of premium issued by the Director of Housing was issued on 10th February, and therefore, the completion date should be 21 days therefrom, namely the day of the letter, namely 3rd March 1997.

8. The solicitors for the Third Party also gave notice that if the transaction was not completed by 5 pm that day, then the Purchaser - the Defendant - would be treated as in breach of the Agreement for Sale and Purchase, and the Vendor - the Third Party - would proceed to terminate the Agreement and forfeit all deposits paid without prejudice to the Vendor's rights to claim for further damages for breach of contract against the Purchaser.

9. On the same day, the solicitors for the Purchaser replied to say that the interpretation of Clause 36 by the Third Party was totally unacceptable, and that the Defendant would only complete in accordance with the terms and conditions of the Agreement for Sale and Purchase. The solicitors then said:

"However, on an entirely without prejudice basis, we will complete the transaction as per the terms of the undertaking letter enclosed."

10. The undertaking letter which was enclosed sets out the cheques which were being sent - which were split cheques - and seeking certain undertakings from the solicitors for the Vendor. As it happened, the letter and the cheques were not despatched to the solicitors for the Vendor until 44 minutes after 5 pm, which was the agreed completion time. As a result, the third party - the Vendor - forfeited all the deposits which had been paid up to date by the Purchaser - the Defendant. Because the Defendant was not able to complete his deal with the Plaintiff, the Plaintiff took out proceedings against the Defendant, and the Defendant joined the Third Party as a third party.

11. The Defendant, on an Order 16 application, sought judgment from the Third Party which Master Woolley declined to do. Today's hearing was an appeal against Master Woolley's decision, and at today's hearing, the Defendant has asked the Court to enter judgment in his favour against the Third Party. Mr Au-Yeung, appearing for the Third Party, has asked the Court to say that because the clause relating to the completion date is not clear, and because there appears to be some inconsistency between the English version and the Chinese version contained in the Provisional Agreement, the Court should, notwithstanding Clause 33 in the Formal Agreement, look at the Chinese version in the Provisional Agreement to try and determine the intention of the parties.

12. One of the reasons for his asking the Court to do that is that his client, in his affidavit, stated that he did not understand English. Mr Au-Yeung has submitted that the correct construction of the clause in question should be that time, namely the 21 days, should start running from the date of the letter signed by the Director of Housing assessing premium, provided that the parties are given a reasonable time to fulfil their commitments under the contract. And he has calculated that from the day that the Third Party informed the Defendant of the assessment of the premium, namely 20th February 1997, until the completion date of the contract, namely 3rd March, the Defendant had 11 days to perform his part of the contract, and therefore Mr Au-Yeung maintains that this was a reasonable time for the Defendant to fulfil his obligations, and that this is the correct construction of the clause regarding the date of completion, i.e. that the completion should be on 3rd March, provided that the parties have a reasonable time to discharge their obligations.

13. He has asked the Court to say that there are triable issues which should be allowed to go to trial because the factual matters which will be relevant to the trial judge would be to show the subsequent conduct of the parties which he says, relying on the case of Amalgamated Investment & Property Co. Ltd. (in Liquidation) v. Texas Commerce International Bank Ltd. (1982) 1 QB 84 and, relying on the judgment of Lord Denning in the Court of Appeal, may give rise to an estoppel, and that it is available not so much as to construe the contract, but to see how the parties themselves acted on the contract, and that under the guise of estoppel, the Court can prevent either party from going back on the interpretation that they themselves gave to it.

14. I have had quoted to me by Mr Lin, appearing for the appellant, "Chitty on Contracts", 27th Edition, page 583, paragraph 12-046, which says:

"The rule that words must be construed in their ordinary sense is liable to be departed from where ... if they were so construed, they would lead to a very unreasonable result or impose upon the contractor a responsibility which it could not reasonably be supposed he meant to assume."

15. He has also quoted to me the "Interpretation of Contracts" by Ken Lewison, 2nd Edition, page 1.04, the headnote of which, under "Objectivity and Subjectivity" says:

"In attempting to reach a conclusion as to the presumed intention of the parties, the court would generally adopt an objective approach, that is to say that it will consider what would have been the intention of reasonable persons in the position of the actual parties to the contract."

And then at page 1.05, quoting from the judgment of Lord Goff in the President of India v. Jebsens (UK) Ltd and Others (1991) 1 Lloyds Report 1:

"For once a clause is embodied in a commercial contract, it has simply to be construed in its context from the objective point of view of reasonable persons in the shoes of the contracting parties. Of course it has to be construed sensibly, and regard has to be had to its practical effect. But the objective interpretation is of paramount importance in commercial affairs ..."

16. Then, another quotation from Lord Devlin in his lecture, "Morals and the Law of Contract", where Lord Devlin said:

"Normally, evidence is not admissible of conversations or correspondence leading up to the contract; they cannot be used to amplify or modify the final document. That document will speak for itself. For the common law has its eye fixed as closely on the third man as on the original parties; and the final document is the only thing that can speak to the third man."

17. And lastly, at page 1.05 of the same book, there is another quotation from the judgment of Hardie Boys J, in the case of Quainoo v. NZ Breweries Ltd, (1991) 1 NZLR 165:

"But where the words are susceptible of more than one meaning, even if one of them be an unusual meaning the Court is entitled to look, indeed it must look, at the surrounding circumstances in order to ascertain from them, if it can, what the intention was. This is quite different from listening to the parties' version of what they each meant."

18. Mr Lin also relies on what was stated by the House of Lords in Whitworth Street Estates (Manchester) Ltd v. James Miller & Partners Ltd, (1970) AC 583, and quoted in the judgment in Amalgamated Investment and Property Co Ltd v. Texas Commerce International Bank Limited, quoted by Lord Denning in his judgment:

"... it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that the contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later."

19. I am of the view that subsequent conduct by the parties in this case will not assist the Court in the construction of this clause. And indeed, as the House of Lords said in the case quoted above, subsequent conduct would not be admissible to assist - evidence of subsequent conduct would not be admissible to assist the Court in its bid to find out what the intention of the parties was.

20. What the Court is entitled to do is to look at the surrounding circumstances without actually asking the parties what they thought a particular clause meant. Mr Lin has submitted that looking at the surrounding circumstances, what is obvious is that the parties must have intended that they each should have 21 days after receiving notification of assessment to finalise things in order for them to decide their obligations under the contract.

21. I take the view that I should only look at what was stated by the parties in the Formal Sale and Purchase Agreement signed on 26th November 1996. My view is that completion should be within 21 days from the date of notification of assessment of premium issued by the Director of Housing. Now, the 21 days should start running, in my view, not from the date when the Director of Housing signed the letter, but, at the very earliest, from the date of despatch of that letter by the Director of Housing to the party concerned. In this case, the earliest date when the time should start to run would be 13th February 1997, when the letter was despatched via the post office.

22. That interpretation would accord, in my view, with what is stated in the relevant clause, that the time should be 21 days from the date of notification. Notification to my mind must mean that a party - the party concerned - is notified of the fact of the assessment of the premium by the Director of Housing. If one were to reckon from the date of the letter signed by the Director of Housing, then one could have the situation where the letter is never despatched, or it is despatched so late that the party concerned is hardly given any time (a) to pay the premium, and (b) to try and comply with his obligations under the contract.

23. My interpretation of that clause is reinforced by what is stated in Clause 36 in the Formal Agreement, where, under the proviso which should apply, when, if the Housing Authority has not finalised the assessment by the completion date, then it is stated that the completion shall be postponed to 21 days after the date of notification of assessment; and also, that such notice is being given by the Vendor's solicitors to the Purchaser's solicitors that the premium has been assessed. So it certainly indicates the position where the Housing Authority has not finalised its assessment by the completion date.

24. It was envisaged by the parties to the contract that the parties should have 21 days to complete the assignment, and that the 21 days should start to run from the date of notification of assessment of premium, and also from the date notice is given by the Vendor's solicitors to the Purchaser's solicitors. So if the premium was assessed on one day, and the Purchaser's solicitors are not notified until a subsequent day, the 21 days should only start to run from the date of the Purchaser's solicitors receiving notice from the Vendor's solicitors.

25. I have stated earlier that my view is that the Formal Agreement supersedes what is contained in the Provisional Agreement by virtue of Clause 33. But if Mr Au-Yeung is right that the best way of trying to determine the intention of the parties in this case is to look at what they agreed at the time of the signing of the Provisional Agreement, which was the clause written in Chinese, which presumably is a language that both contracting parties understood, the Chinese version mentions 28th February or whichever is the later date, 21 days after the notification letter of the Housing Authority is issued. "Issued" is translated in the Chinese version as "fat chut". Now, to my mind that must mean, at the very earliest, the date of the sending of the letter, as opposed to the date of signing of the letter. If the completion date is 21 days from, at the earliest, 13th February 1997, then quite clearly the completion date, according to the Sale and Purchase Agreement, would have been on 6th March 1997.

26. Therefore, in my judgment, the Third Party was not entitled to forfeit the deposits paid by the Defendant.

27. Accordingly, I allow the appeal, and enter judgment against the Third Party in favour of the Defendant in the terms of (i) to (viii) of the Inter-Partes Summons dated 5th February 1998. Costs of the Third Party proceedings, including the costs of this appeal, and the application under the Inter-Partes Summons dated 5th February 1998 be paid to the Defendant by the Third Party, to be taxed if not agreed. There will also be Certificate for Counsel insofar as the hearing before Master Woolley on 27th March 1998 is concerned.

(Peter Nguyen) Judge of the Court of First Instance, High Court

Representation:

Mr Kenny Lin, inst'd by M/s Richard Tai & Co., for Defendant/Applicant.

Mr Au-Yeung Kwan, inst'd by M/s Ng, Tam, Ko & Chan, for Third Party/Respondent.

Third Party's appeal to Court of Appeal dismissed. Please refer to CACV221/1998 and CACV222/1998 dated 3 February 1999

HCA004660/1997

1997 No. A4660

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

____________

BETWEEN
	CHEUNG YUET KIU	Plaintiff
	AND
	NEW FUND DEVELOPMENT LIMITED	Defendant
	AND
	CHUNG TIM FAT	Third Party

____________

Coram: The Hon. Mr. Justice Keith in Chambers

Date of Hearing: 11 December 1997

Date of Delivery of Judgment: 11 December 1997

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J U D G M E N T

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Introduction

1. This is an appeal from an order made by the master on the Plaintiff's summons under Ords. 14 and 86 of the Rules of the High Court. The master gave the Defendant unconditional leave to defend the action. In order to understand the issues which arise on this appeal, it is necessary for me to give a brief summary of the relevant facts, all but one of which are not in dispute.

The facts

2. Chung Tim Fat was the owner of a flat in Kowloon. He had purchased it from the Housing Authority under the Home Ownership Scheme. He could therefore only sell it if he paid a premium to the Housing Authority, which was to be assessed by the Director of Housing. By an agreement dated 26th November 1996 ("the head agreement"), Mr. Chung agreed to sell the flat to the Defendant.

3. The Defendant decided to re-sell the flat, and by an agreement dated 31st January 1997 ("the sub-sale agreement"), it agreed, in its capacity as confirmor, to sell the flat to the Plaintiff. The date for completion of the sub-sale was fixed for 28th February 1997 "or within 21 days from the date of notification of assessment of premium issued by the Director of Housing, whichever is the later".

4. Those words are ambiguous. They could refer to the date on which the Director of Housing issued his assessment of the amount of premium payable by Mr. Chung. Alternatively, they could refer to the date on which the Defendant's solicitors were notified of the amount of premium which the Director of Housing had assessed. Alternatively, Mr. C.Y. Li for the Plaintiff argues that they refer to the date on which the Plaintiff's solicitors were notified of the amount of premium which the Director of Housing had assessed.

5. It is not disputed that (i) the date on which the Director of Housing issued his assessment was 10th February, (ii) the date on which the Defendant's solicitors were notified of the amount assessed was 20th February, and (iii) the date on which the Plaintiff's solicitors were notified of the amount assessed was 27th February. Accordingly, if Mr. Li's construction of the provision in the sub-sale agreement is correct, the date for completion of the sub-sale agreement was 20th March, but it is also possible that the date for completion of the sub-sale agreement was either 3rd March or 13th March. The Defendant's solicitors at the time treated the date for completion as 3rd March.

6. The Plaintiff did not tender the balance of the purchase price by 3rd March. The Defendant elected to treat that failure as a repudiation of the sub-sale agreement. It purported to rescind the sub-sale agreement and to forfeit the deposits which the Plaintiff had previously paid. For their part, the Plaintiff's solicitors contended that the Plaintiff still had until 20th March to tender the balance of the purchase price, and that she was ready, willing and able to do so by then. They contended, therefore, that it was the Defendant who had repudiated the sub-sale agreement by purporting to treat the Plaintiff's failure to tender the balance of the purchase price by 3rd March as a repudiation of the agreement.

The proceedings issued by the Plaintiff

7. It was against that background that the Plaintiff issued the present proceedings against the Defendant. The primary relief sought was an order for specific performance of the sub-sale agreement and damages for its breach. Alternatively, on the footing that specific performance was not available, and that the parties should be relieved of their obligations under the sub-sale agreement, the Plaintiff sought the return of her deposit and damages for breach of the sub-sale agreement, including the payment of the stamp duty and the estate agent's commission which she had previously paid. In her summons for summary judgment under Ords. 14 and 86, she sought judgment only on the alternative basis on which she had originally formulated her claim.

The construction of the provision relating to the date for completion

8. The master took the view that there was a triable issue on the proper construction of the provision relating to the date for completion. For that reason, she gave the Defendant unconditional leave to defend the action. It may be that the master had in mind the one factual issue which may have been in dispute, namely whether the date for completion had been extended by agreement in the course of a telephone conversation between the Plaintiff's solicitors and the Defendant's solicitors on 28th February to a date beyond 3rd March. However, as will emerge later in this judgment, I have not regarded it as necessary to resolve the issue of the date for completion for the purposes of determining this appeal. That is because I have reached the conclusion that, even if the date for completion had been 3rd March, i.e. the date least favourable to the Plaintiff, this appeal must nevertheless be allowed for the reasons which I now proceed to give. For present purposes, therefore, I shall assume that the date for the completion of the sub-sale agreement was indeed 3rd March.

The obligations of the parties

9. Under clause 3(1) of the sub-sale agreement, the parties had concurrent obligations to perform on the date for completion. The Plaintiff's obligation was to tender the balance of the purchase price. The Defendant's obligation was to "execute a proper assurance of the [flat] to the [Plaintiff]... free from incumbrances". The Plaintiff did not tender the balance of the purchase price on 3rd March - albeit because her solicitors believed that the date for completion had not arrived. But even if the Plaintiff had tendered the balance of the purchase price, the Defendant was not in a position to convey the flat to her. That was because the sale of the flat to the Defendant by Mr. Chung had not been completed. The reason for that was because Mr. Chung's solicitors claimed that the Defendant had not tendered the balance of the purchase price by the time fixed for completion under the head agreement.

10. I do not, of course, need to address the question whether Mr. Chung's solicitors' argument is correct. That will be decided in the Third Party proceedings which the Defendant has commenced against Mr. Chung. What it does do is to explain why the Defendant could not perform the concurrent obligation which it owed to the Plaintiff: it could not convey the flat to her because Mr. Chung had not conveyed the flat to it.

11. Accordingly, the question is: what is the legal position if neither of the parties to a sale and purchase agreement of a flat perform their concurrent obligations on the date for completion? The answer is provided by the decision of the Privy Council in Chung Kai Tai Ringo v. Lee Kee Kee [1997] HKLRD 461. Lord Hutton said at p.470A-B:

"... as the obligations of both parties were concurrent and as the vendors were unable to deliver an executed assignment to the purchasers on [the date for completion], they were not entitled to claim that the purchasers had repudiated the contract by failing to pay the balance of the purchase money on that date. In those circumstances time ceased to be of the essence of the contract and the parties had a reasonable time in which to complete."

The undisputed evidence is that the Plaintiff would have been in a position to complete the purchase within a day or two of 3rd March upon being given reasonable notice to complete. What would then have prevented completion taking place (had the Defendant's solicitors not sought to treat the agreement as having been repudiated by the Plaintiff's failure to tender the balance of the purchase price by 3rd March) was the Defendant's inability - which has continued up to today - to convey the flat to the Plaintiff.

12. It follows that since the Plaintiff was in a position to complete the purchase within a reasonable time of 3rd March, and since it was the Defendant who prevented such completion taking place by being unable to convey the flat to the Plaintiff, it was the Defendant who was in repudiatory breach of the sub-sale agreement. Accordingly, even if the date for completion was 3rd March, and not either 13th March or 20th March, the Plaintiff is, subject to one final argument which I must address, entitled to summary judgment against the Defendant.

The effect of the Plaintiff's summons

13. Mr. Kenny Lin for the Defendant relies on the fact that the primary relief originally sought against the Defendant was an order for specific performance of the sub-sale agreement. That amounted to an affirmation of the sub-sale agreement, i.e. an election on the part of the Plaintiff not to treat the Defendant's repudiatory breach as bringing the parties' obligations under the sub-sale agreement to an end. It is argued that limiting the relief sought in the summons to the alternative relief which had originally been sought amounted to an abandonment of the claim for specific performance, and a repudiatory breach of the sub-sale agreement by the Plaintiff which the Defendant subsequently accepted. In addition, it is said that the abandonment of the claim for specific performance could only be done by the giving of reasonable notice to the Defendant. It is said that the failure to give such notice also amounted to a repudiatory breach of the sub-sale agreement by the Plaintiff which the Defendant subsequently accepted.

14. I cannot accept this argument. Limiting the relief sought in the summons to the alternative relief which had originally been sought was not a repudiation of the sub-sale agreement by the Plaintiff. It was simply the realistic recognition by the Plaintiff that specific performance was not possible in view of the Defendant's continuing inability to convey the flat to the Plaintiff. At that stage, the Defendant had not issued its Third Party claim against Mr. Chung seeking specific performance of the head agreement. Indeed, there was no certainty that, even if such a claim was made, it would succeed.

15. In any event,

"in the case of a breach which is persisted in by the other party, the fact that the innocent party has continued to press for performance will not normally preclude him at a later stage from treating himself as discharged": Chitty on Contracts, vol. 1, 27th ed., para. 24-003.

Thus, in Johnson v. Agnew [1980] A.C. 367, the House of Lords held that a vendor can elect whether or not to pursue the remedy of specific performance or that of damages at any time even as late as the trial of the action, and that having originally sought specific performance, it is nonetheless open to a vendor to apply to the court to put an end to the contract and ask for damages for breach of the contract. As in Johnson v. Agnew, specific performance of the sub-sale agreement in the present case was not possible - at any rate, for the time being.

Conclusion

16. For these reasons, therefore, this appeal must be allowed, the order of the master must be set aside, and summary judgment must be given for the Plaintiff. Mr. Lin wanted to address me on the form which that judgment should take. Both he and Mr. Li agreed that the course which I should take today was to leave it to the parties to see whether they could agree the terms of the judgment. I propose to adopt that course, and I therefore give the parties liberty to restore this appeal in the event of them not being able to agree the terms of the order which I should make.

(Brian Keith)

Judge of the Court of First Instance

Representation:

Mr. C.Y. Li and Mr. T.M. Lee, instructed by Messrs. Sit, Fung, Kwong & Shum, for the Plaintiff.

Mr. Kenny C.P. Lin, instructed by Messrs. Richard Tai & Co., for the Defendant.