SIU KAI MING v. LAU SAI HING

CACV 143/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 143 OF 2013

(ON APPEAL FROM HCA NO 2131 OF 2008)

_______________

BETWEEN
	SIU KAI MING（蕭啟明）	Plaintiff (Respondent)
	and
	LAU SAI HING（劉世興）	Defendant (Appellant)

_______________

Before : Hon Stock VP, Hon Barma JA and Hon Poon J in Court

Dates of Written Submissions : 19 and 30 May 2014

Date of Judgment : 13 June 2014

_______________

J U D G M E N T

_______________

 

Hon Poon J (giving the judgment of the Court) :

INTRODUCTION

1.  By a judgment handed down on 20 March 2014, we dismissed the defendant’s appeal and upheld the order of Deputy High Court Judge Seagroatt dated 4 June 2013, ordering the defendant to convey to the plaintiff the title to the Property (as defined in our judgment) with consequential directions for conveyancing and to deliver vacant possession of the Property to the plaintiff.

2.  The defendant now seeks leave to appeal to the Court of Final Appeal under the second “as of right” limb and the “or otherwise” limb pursuant to section 22(1)(a) and (b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484 respectively.  The defendant also asks for a stay of the execution of our judgment if leave to appeal to the Court of Final Appeal is granted.  The plaintiff opposes the application for leave to appeal.  If, however, leave is granted and a stay is imposed, the plaintiff submits that condition should be imposed.

THE SECOND “AS OF RIGHT” LIMB

3.  Section 22(1)(a) of the Ordinance provides that an appeal shall lie to the Court of Final Appeal :

“as of right, from any final judgment of the Court of Appeal in any civil cause or matter … where the appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of $1,000,000.00 or more …”

4.  The Court of Final Appeal laid down the proper approach to an application for leave to appeal on the second limb of section 22(1)(a) in China Field Ltd v Appeal Tribunal (Buildings) (No 1) (2009) 12 HKCFAR 68 and WLK v TMC (No 1) (2009) 12 HKCFAR 473, which was recently summarised by Ribeiro PJ in Chinachem Charitable Foundation Ltd v Chan Chun Chuen (2011) 14 HKCFAR 798 at §20.  For present purposes, we would refer to what Ribeiro PJ had said in China Field pertaining to the second “as of right” limb under section 22(1)(a) :

“22. Having identified the claim or question involved in the appeal, the section requires the court to ask whether it is a claim to property or a civil right amounting to or of the value of $1,000,000.00 or more, or what amounts to the same thing, whether it is a question respecting such property or right.

23. In our view, the language of the section undoubtedly focuses on the value of the claim which is the subject-matter of the appeal and not on any property or right which has some connection with that claim….

24. Consistently with the strict approach adopted in relation to the first limb of section 22(1)(a), it is only proper to ascribe a value which qualifies for leave as of right to the candidate claim or question if (i) on the evidence, such value is clearly quantifiable as a value of $1 million or more; and (ii) the court is satisfied that the Court’s order made upon disposing of the proposed appeal would take effect by immediately conferring or imposing on the relevant parties a financial benefit or detriment in the quantified amount.  It is not enough that one is able plausibly to say that such a financial impact is a likely eventual result of the appeal.

25. In so holding, we bear it in mind that the section applies to an appeal which involves ‘directly or indirectly’ some claim or question to or respecting property or some civil right of the requisite value.  In our view, the words in quotation marks do not detract from the foregoing construction.  We construe those words as applying to the nature of the claim asserted and not as affecting the requirement for immediacy of the consequences of the Court’s order.  Thus, for instance, a claim for specific performance of a contract to convey land or a declaration that a party comes within a class of beneficiaries entitled under a trust to certain property would be covered as involving indirect claims to the relevant property if over the threshold in value.  In such instances, it remains the case that the measurable financial impact on the parties is immediately felt upon the Court disposing of the appeal and making or refusing the order sought.”

5.  Mr Hung, for the defendant, submitted that the plaintiff’s claim is the transfer of title of the Property by the defendant. According to the evidence adduced at trial, the highest of the three valuations obtained of the Property was HK$2,440,000.00.  Since the value of the Property exceeds the statutory threshold, the second “as of right” limb is engaged.

6.  Mr Mak, for the plaintiff, argued that the present dispute concerned the value of the defendant’s right to buy back the Property, not the value of the Property itself.  In the context of the 2006 Agreement, the value of the defendant’s right to buy back the Property has to take into account the expenditure incurred by the plaintiff in building the House.  As recorded by the Judge below at §10 of his judgment, the plaintiff had incurred HK$1,536,200.00 as expenses for building the House.  The actual value of the right to buy back the Property, measured by the benefit to the plaintiff, would be HK$2,440,000.00 – HK$1,536,200.00 = HK$903,800.00.  That is below the statutory threshold.  The second “as or right” limb is not engaged.

7.  We first consider if the parties’ claims fall within the second “as of right” limb under section 22(1)(a).  The Property evidently lies at the heart of the parties’ dispute.  The plaintiff claimed specific performance of the 2006 Agreement which entailed a transfer of the title to the Property and in terms sought “an order that the Defendant do assign the Plaintiff’s Property to the Plaintiff” with vacant possession thereof. Conversely, the Defence and Counterclaim (and the proposed appeal) was (and is) premised on an alleged “binding contract... for the sale and purchase of the rights and interest of the Plaintiff” in the Property, on which basis there is a counterclaim for an order for sale by the plaintiff of his interests and rights in the Property at HK$2,440,000.00.  It follows that the rival claims are clearly indirect claims to the Property within the meaning of the second “as of right” limb under section 22(1)(a).

8.  We next consider if the values of the parties’ rival claims exceed the statutory threshold of HK$1 million.  The starting point is of course the value of the Property, which according to the evidence of valuations adduced at trial exceeds the threshold.  Plainly, the value of the Property represents the value of the defendant’s counterclaim.  In assessing the value of the plaintiff’s claim, we do not think the expenses already incurred by the plaintiff for building the House should be deducted from the value of the Property.  If the Court of Final Appeal disposes of the proposed appeal in the plaintiff’s favour, the plaintiff would be better off financially by the value of the Property.  The fact that he would then be able to recoup the expenses does not detract from the financial benefit received, which is the value of the Property.

9.  For the above reasons, we hold that the second “as of right” limb of section 22(1)(a) is engaged.

THE “OR OTHERWISE” LIMB

10.  It is well established that the grant of leave under the “or otherwise” limb in section 22(1)(b) of the Ordinance is an exceptional course.  It is incumbent on the applicant to meet the high threshold of showing the existence of exceptional circumstances.

11.  Mr Hung contended that after the plaintiff had, by his solicitors’ letter dated 22 October 2008, accepted that the defendant’s repudiation of the new contract for sale and purchase of the Property upon the exercise of the option on 16 December 2007, that new agreement was not rescinded ab initio.  The plaintiff was only entitled to damages and not the Property.  The defendant therefore has a good prospect of success and in the interest of justice, leave should be granted on the “or otherwise” limb.

12.  In our view, Mr Hung’s argument is misconceived.  The plaintiff might well be entitled to damages under the new agreement.  But that did not detract from the fact that under the 2006 Agreement, the plaintiff was entitled to be assigned the Property.

DISPOSITIONS

13.  For the above reasons, we grant leave to the defendant to appeal to the Court of Final Appeal under the second “as of right limb” of section 22(1)(a) but refuse leave under the “or otherwise” limb of section 22(1)(b).

14.  We further order a stay of our judgment pending the disposal of the appeal by the Court of Final Appeal.  But the stay should be granted on terms.  The Judge ordered as part of the consequential relief that the defendant is to pay interest to the plaintiff in the sum of HK$621,376.63 on the sum of HK$1,808,560.00 at commercial rate from 27 October 2007 to 4 June 2013.  We subsequently clarified that as a result of our judgment, interest should only commence on 22 October 2008.  As a condition for the stay of our judgment, we order the defendant to pay into court within 14 days from the date of this Decision an amount representing the interest on the sum of HK$1,808,560.00 at commercial rate from 22 October 2008 to 4 June 2013.

15.  Finally, we order that the costs of this application be in the cause of the appeal to the Court of Final Appeal.

(Frank Stock) Vice-President

(Aarif Barma) Justice of Appeal

(Jeremy Poon) Judge of the Court of First Instance

Mr Andy Hung, instructed by Messrs Damien Shea & Co, for the defendant (appellant)

Mr Andrew Mak and Ms Carol Wong, instructed by Adrian Yeung & Cheng, for the plaintiff (respondent)

CACV 143/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 143 OF 2013

(ON APPEAL FROM HCA NO 2131 OF 2008)

_______________

BETWEEN
	SIU KAI MING（蕭啟明）	Plaintiff (Respondent)
and
	LAU SAI HING（劉世興）	Defendant (Appellant)
_______________

Before : Hon Stock VP, Hon Barma JA and Hon Poon J in Court

Dates of Written Submission on Costs : 14 and 23 April 2014

Date of Decision on Costs : 21 May 2014

______________

D E C I S I O N

______________

Hon Stock VP :

1. I agree with the judgment of Poon J as to costs.

Hon Barma JA :

2. I agree with the judgment of Poon J.

Hon Poon J :

INTRODUCTION

3. By our judgment handed down on 20 March 2014, we dismissed the defendant’s appeal against the order of Deputy High Court Judge Seagroatt dated 4 June 2013.  In so doing, we identified four main issues :

(1) First, what was the effect of the 2006 Agreement vis-à-vis the 1^st and 2^nd June Agreements?

(2) Second, on a proper construction, did Clause III.5 of the 2006 Agreement give the defendant a pre-emptive right or an option to purchase the Property?

(3) Third, if that was an option, was the oral communication by the mother of the defendant’s wish to purchase the Property a proper exercise of the option?

(4) Fourth, if that was a valid exercise of the option to purchase the Property, how was the parties’ position affected by the solicitors’ letters of 11 and 22 October 2008?

4. We held that :

(1) On Issue 1, the 2006 Agreement was a replacement agreement, replacing the 1^st and 2^nd June Agreements.

(2) On Issue 2, Clause III.5 of the 2006 Agreement gave the defendant an option to purchase the Property.

(3) On Issue 3, the oral communication by the defendant’ mother of his wish to purchase the Property on 16 December 2007 was a valid exercise of the option under Clause III.5 of the 2006 Agreement.

(4) On Issue 4, the defendant’s solicitors’ letter of 11 October 2008 amounted to a repudiation of the new agreement that the parties had entered into upon his exercise of the option on 16 December 2008.  The plaintiff’s obligations had been discharged when, by his solicitors’ letter of 22 October 2008, he accepted the defendant’s repudiation.

5. We further made an order nisi that the costs of the appeal be to the plaintiff to be taxed if not agreed (“First Order Nisi”) and another order nisi that there be no order as to costs of the respondent’s notice.  The defendant now seeks to vary the First Order Nisi.  He also seeks to clarify our judgment on one particular aspect concerning interest.

6. I will first deal with the application to vary the First Order Nisi.

VARIATION OF FIRST ORDER NISI

7. The defendant contends that an issue based approach should be adopted.  Here, the plaintiff failed on Issues 1 to 3 and succeeded on Issue 4 only.  The defendant should have the costs of the 4 Issues at trial.  For the appeal, the defendant should have the costs of Issues 1 to 3 and the plaintiff should have costs of Issue 4.

8. The defendant’s submission as to why he should have the costs below can be disposed of shortly.  In dismissing the defendant’s appeal, we upheld the Judge’s order, which includes the costs order that he made against the defendant.  That is the end of the matter insofar as the costs of the trial are concerned.  The defendant should not be allowed to re-visit the matter now.  Nor is it open to the defendant to apply to “vary” the costs order below as if they were part of the First Order Nisi for the simple reason that it does not cover the costs of the trial at all.

9. Turning to the costs of the appeal, the starting point is that the plaintiff, as the successful party, is prima facie entitled to his costs.  As Order 62, rule 3(2) of the Rules of the High Court provides :

“… the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

10. The general rule of costs following the event does not cease to apply simply because the successful party has failed on a discrete issue.  But where that issue has caused a significant increase in the length or cost of the proceedings, the court may deprive the successful party of the whole or a part of his costs.  Further, if the successful party raises the failed issue improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  See Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, per Nourse LJ at p 1214.

11. These principles derived from Eglindata are not rules.  Nor should they be applied mechanically.  In considering if and how to apply them, the court always bears in mind that fairness is the touchstone.  That is to say, the court must exercise the discretion to achieve a just result having regard to the overall circumstances of the case.  See Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 4) [2005] 4 HKC 162, per Lam J (as he then was) at para 14; Kwan Siu Wa Becky v Cathay Pacific Airways Limited, CACV 92/2010 and HCAL 2, 4, 5, 8 and 9/2009, unreported, 19 April 2011, per Tang Acting CJHC (as he then was), paras 6 – 9.

12. Here, I do not think it is a proper exercise of the court’s discretion to award the defendant costs of Issues 1 to 3.

13. First, although I accept that Issues 1 to 3 are distinct from Issue 4, I do not think Issues 1 to 3 had caused a significant increase in length or cost of the appeal.  The Eglindata principles enabling a departure from the general rule that costs are to follow the event as set out above are not engaged.

14. Second and more importantly, the defendant should have carefully evaluated the prospect of his success before launching the appeal.  Had he done so, he should have known that even if he were to succeed on Issues 1 to 3, the answer to Issue 4 is so obvious that his appeal was doomed to fail.  The court should not sanction his conduct by awarding him costs of Issues 1 to 3 when he ought to have known that pursuing them before us would take his appeal, which is plainly unarguable, nowhere.

15. For the above reasons, I would refuse the application to vary the First Order Nisi.

CLARIFICATION OF OUR JUDGMENT

16. The Judge ordered, as part of the consequential relief, that the defendant is to pay interest to the plaintiff in the sum of HK$621,376.63 on the sum of HK$1,808,560.00 at commercial rate from 27 October 2007 to 4 June 2013 and thereafter at commercial rate until the date of completion of the assignment to the plaintiff; that the plaintiff is entitled to a lien in his favour over the House of the sum of HK$1,808,560.00 plus interest at commercial rate from 28 October 2008 until the date of completion of the assignment; and that the defendant do provide an account in respect of any mesne profits received by him as a result of any letting of the Property between 23 October 2007 and 4 June 2013 and thereafter until the date of completion of assignment of the title to the plaintiff, and to pay to the plaintiff any such sums received.  By a Note to Judgment dated 22 July 2013, the Judge further held that :

“3. …the Plaintiff was entitled only to the capital sum expended by him in building the whole house (the contract sum) plus interest from 27 October 2007 until vacant possession of the upper part of [the Property] is given to him. Once vacant possession has been given the capital sum would no longer be payable but he would still be entitled to interest accumulated up to that date. He is also entitled to any mesne profits obtained by Defendant during any of that interim period.”

In short, interest on any sums the defendant is ordered to pay to the plaintiff would start to run from various dates as identified by the Judge.

17. The defendant submits that in light of our holding on Issue 4, interest should only commence from 22 October 2008, that is, the date when the plaintiff’s obligations under the new agreement were discharged and not earlier.  This is inconsistent with our upholding the Judge’s order in toto.  He now seeks clarification.

18. Having reconsidered the matter, I think the defendant is correct.  I note that the order of this Court arising from our judgment is not sealed yet, which means that it can still be revised to reflect the correct position on interest.  I clarify the judgment by stating explicitly that interest arising from the Judge’s judgment is to commence on 22 October 2008.

COSTS OF THE PLAINTIFF’S APPLICATION

19. Bearing in mind how the two matters arising from the plaintiff’s application before us are disposed of, I think the plaintiff should have 50% of his costs and the defendant should have 50% of his costs. Both sets of costs are to be taxed if not agreed.

Hon Stock VP :

20. Accordingly, the application to vary the costs order nisi is refused and the costs of that application will be in the terms proposed by Poon J at paragraph 19 above.

(Frank Stock) Vice-President

(Aarif Barma) Justice of Appeal

(Jeremy Poon) Judge of the Court of First Instance

Damien Shea & Co, for the defendant (appellant)

Mr Andrew Mak and Ms Carol Wong, instructed by Adrian Yeung & Cheng, for the plaintiff (respondent)

CACV 143/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 143 OF 2013

(ON APPEAL FROM HCA NO 2131 OF 2008)

_______________

BETWEEN
	SIU KAI MING（蕭啟明）	Plaintiff (Respondent)
	and
	LAU SAI HING（劉世興）	Defendant (Appellant)

_______________

Before : Hon Stock VP, Hon Barma JA and Hon Poon J in Court

Date of Hearing : 26 February 2014

Date of Judgment : 20 March 2014

_______________

J U D G M E N T

_______________

 

Hon Stock VP :

1.  I respectfully agree with the judgment of Poon J.

Hon Barma JA :

2.  I agree with the judgment of Poon J.

Hon Poon J :

3.  This appeal concerns a small village house erected on the Remaining Portion of Lot No.78 in Demarcation District No.236, Sai Kung, New Territories (“the House” and “the Land” respectively).

4.  By judgment dated 4 June 2013, Deputy High Court Judge Seagroatt ordered, among other things, the defendant to convey to the plaintiff the title to the 2^nd floor and roof of the House (“the Property”) with consequential directions for conveyancing and to deliver vacant possession of the Property to the plaintiff.

5.  The defendant now appeals against the learned Judge’s order and seeks various reliefs which essentially mandate the plaintiff to sell the Property to him with vacant possession for the sum of HK$2,440,000.00.

6.  The background may be summarized as follows.

BACKGROUND

7.  The defendant is the registered owner of the Land.  The plaintiff is a developer specializing in building small village houses.

8.  For the purpose of building the House, which was to be financed by the plaintiff entirely, and the subsequent disposal of interest therein, the parties entered into 4 agreements in Chinese :

(1) The Joint Development House Splitting Agreement dated 6 June 2006 (“1^st June Agreement”).

(2) The Supplemental Joint Development House Splitting Agreement also dated 6 June 2006 (“2^nd June Agreement”).

(3) The Joint Development House Splitting Agreement signed in July or August 2006 but only dated 2006 (“the 2006 Agreement”).

(4) The Supplemental Joint Development House Splitting Agreement dated 5 August 2006 (“August Agreement”).

9.  Under Clause 1 of the 1^st June Agreement, after the construction of the House, the plaintiff shall be assigned the Property, the defendant the ground floor and the 1^st floor. Further :

“Both the parties agree that if [the plaintiff] shall sell [the Property] assigned to him, [the defendant] has a pre-emptive right to purchase the same by giving written notice of his intention to purchase to [the plaintiff] within a month from the date of lodging application for the occupation permit. The purchase price shall be the price valued by Wing Lung Bank Limited, Hang Seng Bank Limited and the Bank of China Limited, whichever is highest.”

10.  The 2^nd June Agreement supplemented the 1^st June Agreement in various aspects.  Clause 2(5) dealt with the valuations by the three banks referred to in Clause 1 of the 1^st June Agreement and further provided that if the defendant was not satisfied with the valuations, he was entitled to jointly appoint a valuer with the plaintiff to revalue the House.  Significantly, Clause 2(5) went on to stipulate :

“[The defendant] shall have the final decisive right to determine whether or not to purchase [the Property] within 1 month from the date of lodging application for occupation permit. [The plaintiff] shall also have the right to decide whether or not to sell the title of [the Property] to [the defendant].”

11.  Like the 1^st June Agreement, the 2006 Agreement dealt with the parties’ rights and obligations for the construction of the House.  The provisions are in substance similar to those in the two June Agreements.  What was in dispute however is Clause III.5, which provided :

“If [the defendant] needs to re-purchase the property title owned by [the plaintiff], the purchase price shall be the highest of the valuations made by 3 property valuers. But [the defendant] shall communicate his decision to [the plaintiff] within 30 days after the issuance of the Certificate of Compliance….”

The names of the three valuers were then stated.

12.  The August Agreement did not add much to the 2006 Agreement or the substance of the parties’ transaction.  It can be safely ignored for present purposes.

13.  As the Judge had aptly summarized, the critical nature of the transaction between the parties was that the plaintiff would construct the House at his own cost, and the consideration for his so doing would be the granting of title to him of the Property.[1]

14.  Construction of the House was completed in about August or September 2007.  The Certificate of Compliance was issued by the District Lands Office, Sai Kung on 23 October 2007.

15.  The Judge found that on 16 November 2007 the plaintiff’s wife notified the defendant’s mother as his agent that the Certificate of Compliance had been issued and that the defendant’s mother signed on the written notice of the same date in acknowledgment.[2]  That written notice asked the defendant to reply within one month if he wished to “re‑purchase” the Property.

16.  On 27 November 2007, the English version of the Certificate of Compliance was faxed to the defendant’s father.  On the following day, the Chinese version was faxed to the defendant’s father.

17.  The defendant then obtained valuations of the Property from the 3 valuers named in Clause III.5 of the 2006 Agreement on 6, 10 and 14 December 2007 respectively.  The last valuation, prepared by Centaline, was the highest.  It valued the Property at HK$2,440,000.00.

18.  What happened next was that the defendant’s mother orally informed the plaintiff that he would buy back the Property at HK$2,440,000.00.  The defendant’s and his mother’s evidence is that she so informed the plaintiff about 1 week before Christmas 2007.  The plaintiff’s evidence is that it took place on 16 December 2007.  The Judge did not make any finding on when the defendant’s wish was orally communicated to the plaintiff, observing that it was unclearly precisely when that took place.  He however said it was more likely to be more than 30 days counting from 16 November 2007.[3]

19.  Differences between the parties then arose as evidenced by the solicitors’ correspondence.

20.  By a letter dated 9 April 2008, the plaintiff’s solicitors acknowledged that the defendant had “a right to buy back the Property in consideration of the highest valuation” pursuant to Clause III.5 of the 2006 Agreement.  They went on to say that the parties had agreed to vary and modified the term in that they now agreed only to appoint one of the three named valuers to be do the valuation.  They enclosed a draft letter for engaging the valuer for the defendant’s solicitors to consider.  The defendant’s solicitors made no reply.

21.  The plaintiff’s solicitors then followed up on the matter by a letter dated 8 August 2007.  After referring to the history of the transaction, the plaintiff’s solicitors asked the defendant to buy the Property at HK$3,200,000.00 otherwise there should be a partition of the title and assignment of the Property to the plaintiff.

22.  The defendant’s solicitors wrote back on 9 September 2008 and gave notice to the plaintiff that “[the defendant] now endeavours to exercise his lawful right of pre-emption of purchase of [the Property at the valuation price of HK$2,440,000.00]”.  The plaintiff did not make any reply.

23.  Then significantly, by another letter dated 11 October 2008, the defendant’s solicitors informed the plaintiffs’ solicitors that “[the defendant] hereby irrevocably withdraws his endeavour to exercise his right under the contract to purchase [the Property] at HK$2,440,000.00.”

24.  By a letter dated 22 October 2008, the plaintiff’s solicitors demanded the defendant to transfer the Property to the plaintiff, failing which proceedings would be commenced.

25.  In the end, the plaintiff commenced HCA2131/2008 on 28 October 2008.

PROCEEDINGS BELOW

26.  The plaintiff basically sought an order of specific performance compelling the defendant to assign to him the Property with vacant possession.  The defendant denied liability and counterclaimed, effectively, for an order that the plaintiff do sell the Property to him at HK$2,440,000.00.  As said, the Judge found in favour of the plaintiff.

27.  The Judge first found that under the 1^st and 2^nd June Agreement, the defendant had a pre-emptive right to purchase the Property.[4]  Clause III.5 of the 2006 Agreement was a novation agreement but it did not alter the substance of the defendant’s pre-emptive right.[5]  The defendant must exercise the right by giving the notice in writing, a term that the Judge found to have been implied in the 2006 Agreement.[6]  So his mother’s oral communication of the defendant’s wish to buy the Property was not a valid exercise of the pre-emptive right.  In any event, the right was not exercised within time as stipulated under Clause III.5.[7]

28.  Turning to the letter of 9 September 2008 from the defendant’s solicitors, the Judge described it as an unilateral attempt to resurrect the pre-emptive right.[8] The solicitors’ another letter of 11 October 2008 was, in the Judge’s view, an unequivocal statement that the defendant abandoned any attempt to exercise his pre-emptive right.[9]

MAIN ISSUES

29.  For present purposes, the following main issues are identified.

30.  First, what was the effect of the 2006 Agreement vis-à-vis the 1^st and 2^nd June Agreements?

31.  Second, on a proper construction, did Clause III.5 of the 2006 Agreement give the defendant a pre-emptive right or an option to purchase the Property?

32.  Third, if that was an option, was the oral communication by the mother of the defendant’s wish to purchase the Property a proper exercise of the option?

33.  Fourth, if that was a valid exercise of the option to purchase the Property, how was the parties’ position affected by the solicitors’ letters of 11 and 22 October 2008?

Issue 1 – effect of the 2006 Agreement

34.  As noted, the Judge found in effect that the 2006 Agreement was a novation agreement.  Properly understood in context, what the Judge meant was that the 2006 Agreement was a replacement agreement, replacing the 1^st and 2^nd June Agreements.  After some initial reluctance, Mr Mak, for the plaintiff, accepted that that was the effect of the 2006 Agreement.  He did not pursue his initial argument that the 2006 Agreement was just a variation of the 1^st and 2^nd June Agreements.

Issue 2 – preemptive right or option

35.  To recap, Clause III.5 of the 2006 Agreement provided :

“If [the defendant] needs to re-purchase the property title owned by [the plaintiff], the purchase price shall be the highest of the valuations made by 3 property valuers. But [the defendant] shall communicate his decision to [the plaintiff] within 30 days after the issuance of the Certificate of Compliance….”

The defendant’s case is that Clause III.5 conferred upon him an option to purchase the Property to be exercised in the manner as provided.

36.  Mr Mak first took a pleading point.  He argued that the defendant had not pleaded that Clause III.5 was an option in his pleadings.  With respect, this point is entirely misconceived.  The defendant did, in substance, plead the point in his pleadings, although he used the term “pre‑emptive right”.  Further, as apparent from the Judge’s judgment, the case as argued before him was predicated on the very issue whether Clause III.5 was an option or a pre-emptive right.  It is too late to take this pleading point on appeal.

37.  Turning to the substantive question on construction, Mr Mak argued that Clause III.5 should be considered together with Clause 1 of the 1^st June Agreement and Clause 2(5) of the 2^nd June Agreement.  Under those provisions, the defendant only had a pre-emptive right to purchase the Property.  The parties must have intended the same under Clause III.5 of the 2006 Agreement.

38.  In Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279, Lord Hoffmann NPJ said at p296 :

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

When Clause III.5 is so construed, it does not bear the meaning as contended by Mr Mak.

39.  It is important to bear in mind that initially under the 1^st and 2^nd June Agreements the defendant only had a pre-emptive right to purchase the Property.  However, as noted by the Judge, it was necessary for the parties to enter into the 2006 Agreement, a new agreement to replace the two June Agreements, because the defendant’s parents were not happy with Clause 1 of the 1^st June Agreement and Clause 2(5) of the 2^nd June Agreement.[10]  Then after further negotiations,[11] the plaintiff drafted and presented the 2006 Agreement to the defendant for signature.[12]  The evidence shows that at the time the plaintiff had the benefit of legal advice.  The clear language used in Clause III.5 is markedly different from the corresponding provisions in the two June Agreements.  The change must have been deliberate to reflect the change in the parties’ intention.  The pre-emptive right was now replaced by an option to be exercised in the manner as stipulated.

Issue 3 – whether the mother’s oral communication was a valid exercise of the option

40.  Issue 3 concerns the manner in which the defendant’s option to purchase the Property was exercised.  There are three sub-issues.

41.  First, must the notice of the exercise of the option be given in writing?

42.  Clause III.5 did not specify that the notice must be in writing.  So on its face, either written or oral notice would suffice.

43.  However, the Judge, after referring to the previous provisions in the 1^st and 2^nd June Agreements which contained written notification, noted that it was just an oversight of the parties in failing to specify that the notice was to be in writing and that was not a deliberate change in procedure.  He also referred to commons sense and practice adopted by the parties in relation to other procedures and said that it would require a written notice.[13]

44.  With respect, I fail to see how a term requiring written notice can be implied into Clause III.5.  Bearing in mind that the 2006 Agreement was a new replacement agreement, the non-specification of the mode of notice was indicative of the parties’ intention.  Written notice, as mandated by the 1^st and 2^nd June Agreements, was no longer required. Either written or oral notice would suffice.

45.  The second sub-issue relates to the time within which the defendant must exercise the option.

46.  At first glance, it is a matter of construction of Clause III.5.  However, whatever the construction might be, the plaintiff had by conduct extended the time for one month from 16 November 2007 when on the same date, his wife asked the defendant’s mother to tell them if he wished to buy the Property within one month.  The same request was also recorded in the written notification signed by the defendant’s mother on the same occasion.

47.  The third and final sub-issue is whether the oral communication by the defendant’s mother was made within one month from 16 November 2007.

48.  Now, the time of the one month’s extension began to run on 17 November 2007 and expired on 16 December 2007 : see Chitty on Contracts, 31^st Edition, Vol 1, para 21-025.  Although the Judge did not make any express finding, it is the plaintiff’s own evidence that the defendant’s mother told him on 16 December 2008 that the defendant would buy the Property.  In other words, even on the plaintiff’s own case, the oral notice was given within time, albeit on the last day of the extension.

49.  It follows from the above analysis that the oral communication by the defendant’s mother of his wish to buy the Property on 16 December 2007 was a valid exercise of the option under Clause III.5.

50.  Had the matter ended there, the defendant would have been entitled to judgment.  For once an option is validly exercised, the parties come under obligations to perform as if they had concluded an ordinary contract of sale : Spiro v Glencrown Properties Ltd [1990] Ch 537, per Hoffmann J (as he then was) at p543D.  This brings me to Issue 4.

Issue 4 – effect of the letters of 11 and 22 October 2008

51.  As said, the parties were embroiled with disputes which cumulated in the letters of 11 and 22 October 2008.

52.  By the letter of 11 October 2008, the defendant unequivocally abandoned his right to buy the Property.  Legally speaking, as rightly submitted by Mr Hung, for the defendant, it meant that the defendant was acting in repudiatory breach of the new agreement that the parties had entered into upon his exercise of the option on 16 December 2008.

53.  By the letter of 22 October 2008, the plaintiff’s solicitors demanded the defendant to transfer the Property to the plaintiff, thereby holding the parties to the original bargain under the 2006 Agreement.  Legally speaking, the defendant’s repudiation was accepted by the plaintiff.  The plaintiff’s obligations had been discharged by the defendant’s repudiation of the new agreement.  What follows is that the plaintiff was entitled to be assigned the Property under the 2006 Agreement.

CONCLUSION

54.  Although I differ from the Judge’s reasoning, for the reasons stated above, I would uphold his order.

55.  I would accordingly dismiss the defendant’s appeal with costs, to be taxed if not agreed.

Hon Stock VP :

56.  Accordingly the appeal is dismissed with an order nisi that the costs of the appeal be to the plaintiff to be taxed if not agreed and an order nisi that there be no order as to the costs of the respondent’s notice.

(Frank Stock) Vice-President

(Aarif Barma) Justice of Appeal

(Jeremy Poon) Judge of the Court of First Instance

Mr Andy Hung, instructed by Messrs Damien Shea & Co, for the defendant (appellant)

Mr Andrew Mak and Ms Carol Wong, instructed by Adrian Yeung & Cheng, for the plaintiff (respondent)

Please refer to FACV8/2014 for the relevant appeal(s) to the Court of Final Appeal.