CHAN CHI TUNG v. LAM CHOR KUEN KATE

1991, No. A3471

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By an agreement for sale and purchase dated 4 April 1991, the plaintiff agreed to purchase and the defendant agreed to sell Flat D, 2/F., Tak Fat Building, 11-17 Finnie Street ("the flat") for $600,000.

2. It was a term of the agreement that "time shall in every respect be of the essence".

3. It was also a term of the agreement that the date of completion was to be "on or before the 18th day of April, 1991 between 9:30 a.m. to 1:00 p.m. on weekdays and 10:00 a.m. to 12:00 a.m. on weekend", and that such completion should take place at the office of Messrs. Hermes W K Lui & Co., the solicitors for the vendor, or elsewhere at their direction.

4. The agreement stated that the defendant, as vendor, was selling the flat as a confirmor and that on completion of the sale and purchase, would procure the execution by the "Head Vendor of an assignment of the Property to the Purchaser"

5. It is unnecessary to describe the events leading up to the day and time, of completion, because they do not, in my view, materially assist in unravelling the issues which arise in this case. Suffice to say that the transaction was straightforward up until 18 April when the plaintiff's solicitor failed to deliver the various cheques making up the balance of the purchase price, namely $540,000, (a deposit of $60,000 having been paid) before 1:00 p.m. on that day, as required by the agreement.

6. The sole reason for this failure was the negligence of Miss Lam, the secretary of the conveyancing clerk, Mr. Chan, who was handling the transaction on behalf of the plaintiff. She admitted, in evidence, that if she had known that the cheques were due before 1:00 p.m., she would have ensured that they were delivered in time. However, she was under the impression that the cheques had to be delivered before 3:00 p.m. She was wrong.

7. In fact, the cheques arrived at the office of the defendant's solicitors between 2:15 and 2:30 p.m.

8. The defendant waited for the cheques at her solicitors office from about noon to shortly after 2:00 p.m. Attempts by her conveyancing clerk, Mr. Ho, to contact the persons handling the transaction on behalf of the plaintiff between 1:00 p.m. and approximately 2:00 p.m., proved unsuccessful.

9. By the time the cheques arrived, a decision had already been made by the defendant in consultation with her solicitor, to accept the plaintiff's repudiation of the agreement in failing to complete before 1:00 p.m.

10. That acceptance was communicated to the plaintiff's solicitor, by letter dated 18 April, from Mr. Ho, the conveyancing clerk. Omitting formal parts, it reads as follows:-

" We refer to your letter of 18th April 1991 together with the balance of purchase price of the above premises which are received at 2:30 p.m. today.

As you may be aware that the Sub-sale agreement provided for the balance of purchase price to reach our office not later than 1:00 p.m. In the premises, we are instructed that the purported payment of balance of purchase price is not accepted by our client and is returned herewith.

Furthermore, in accordance with the said Sub-sale Agreement, we are instructed to forfeit the deposit as provided for in the said Sub-sale Agreement. We are further instructed to reserve our client's right hereto for your client's breach of Agreement."

11. This letter was received in the office of the plaintiffs solicitor at approximately 4:00 p.m. on 18 April.

12. The plaintiff now prays for specific performance of the agreement, further or alternatively for damages for breach of contract, and further or alternatively for relief against forfeiture. The defendant counterclaims for damages for breach of the agreement.

13. The pleadings are voluminous, and largely irrelevant, and I have no intention of summarising them. The relevant issues can be extracted as follows:

(1) Was the failure to tender the cheques before 1:00 p.m such a minor breach of the agreement as to fall within the principle of "de minimis non curat lex"?

(2) Can relief against forfeiture of a deposit be granted, even if specific performance is not decreed?

(3) Was an extension of time granted between 2:05 and 2:10 p.m. and if so, did delivery of the cheques before 2:30 p.m. constitute a reasonable delay having regard to the waiver implicit in that extension.

(4)    Was the agreement still in existence shortly before 2:30 p.m. on 18 April 1991 when the cheques arrived, having regard to the fact that the repudiation of the plaintiff in failing to deliver the cheques before 1:00 p.m. was not accepted until the receipt of the letter referred to at 4:00 p.m.?

14. A further issue was raised on the pleadings as to whether the defendant was in a position to pass title at 1:00 p.m. but it was abandoned.

15. I will deal with each issue in turn:

(1)    "De minmis non curat lex"

(2)    Can relief against forfeiture of a deposit be granted?

16. The short answer is that it cannot. It is trite law that relief may be granted against the forfeiture of an instalment, (See Kilmer v. British Columbia Orchard Lands, Limited [1913] AC 319 and Steedman v. Drinkle [1916] AC 275) even if specific performance is not decreed.

17. It is submitted on behalf of the plaintiff, relying on Steedman Drinkle, that whilst specific performance may not be decreed if time is of the essence, and there has been a breach, it can be decreed if there has expressly or by implication been a waiver of the provision. It is submitted that this is what happened in the present case. In my view, there was no such waiver. As I have said, the fact that the defendant waited, was not an affirmation of the agreement by her. She retained the right to elect whether to affirm or accept repudiation. In this case she elected to accept the repudiation. Her conduct was quite unequivocal. When the cheques had not arrived by 2:15 p.m., she instructed the conveyancing clerk to draw up alternative documentation whereby she would purchase the flat from the head vendor, and left for the bank to make the necessary financial arrangements. I fail to see how this conduct could be described as a waiver by the defendant of the provision that time was of the essence.

18. It was submitted that, in accordance with the principle of STOCKLOSER v. JOHNSON [1954] 10B 476, the court has jurisdiction to relieve against forfeiture of instalments after recission, if a party has behaved in an unconscionable or fraudulent manner.

19. I need to say only two things about that submission. Firstly, Stockloser v. Johnson was concerned with instalments, not deposits, and secondly, there has not been a scintilla of evidence in the present case to support the suggestion of unconscionable or fraudulent conduct. The defendant went to her solicitors office to complete, was frustrated and angered by the plaintiffs repudiation, waited for over an hour, retaining her right to elect, and was perfectly justified in making other arrangements when the cheques had not arrived by 2:15 p.m. She was selling a flat to the plaintiff for the same price at which she had purchased it, because after her purchase, which was her second choice, an opportunity arose for her to purchase the flat which she really wanted, namely the flat in which she was then living, and which was one floor below the suit premises. The owner of that flat finally agreed to sell it to her after she had already agreed to purchase the suit premises. Hence her sale to the plaintiff.

20. A number of allegations and suggestions were made concerning a rising property market, and the fact that the defendant eagerly seized upon the plaintiff's repudiation to rescind the agreement. It was suggested that the apparent ignorance pleaded by the defendants conveyancing clerk and her boy friend about the rising property market was an indication of sharp ice or other unconscionable conduct.

21. In my view, there is no evidence from which I could even begin to draw an inference of sharp practice or other unconscionable conduct, let alone fraud. Even if the defendant, being aware that fortune had delivered her an unexpected bonanza, in the form of a deposit to be forfeited, and a flat to be retained in a rising market, sent a faxed letter at 1.01 p.m. gleefully accepting the repudiation, such acceptance of the repudiation would have been no more than the exercise of her legal right and could not, even in these circumstances be described as sharp practice, unconscionable or fraudulent conduct. But in fact, this was not the case. In fact, the defendant was an increasingly worried, irritated and angry woman.

22. So far as a deposit is concerned, the law is clearly set out in NG Chek-kok and KIU Wai-ming[1992] 1 HKLR 5, at pp. 16-17, per Clough, J.A.:

"Where however a vendor exercises a right to forfeit a deposit (which is an earnest of the performance of the contract by the purchaser) upon the default of a purchaser the forfeiture is not a penalty and its retention has been said to be liquidated damages: Williams on Title, 4th ed., pp 744-5 and note 16 at p.744 citing Hinton v. Sparkes (1868) LR 3 CP 161. We know of no case, reported or unreported in the English Courts where a normal deposit in a conveyancing transaction has been the subject of relief from forfeiture by a vendor (as distinct from recovery under S49(2) of the Law of Property Act 1925) and it seems to us to be a most unlikely occurrence, as is suggested in the passage in Barnsley's Conveyancing Law & Practice at p.224 Cited by Mr. Chang.".

23. In the result, there can be no relief from forfeiture of a deposit, even if a decree for specific performance is refused.

(3) Extension of time

24. It was submitted on behalf of the plaintiff that if I accepted the evidence of Miss Lam, that would indicate that time had been extended by the defendant from 2.05 or 2.10 because Mr. Ho, the defendant's conveyancing clerk would have waived-the repudiation, at that time. In those circumstances, the plaintiff must be allowed a reasonable time to perform from the time of the waiver. Since this was between 2.05 p.m. and 2.10 p.m., the cheques arrived within a reasonable time of the waiver, namely before 2:30 p.m.

25. It was conceded on behalf of the plaintiff that this issue would only arise if I preferred the evidence of Miss Lam to that of Mr. Ho. It is therefore necessary to examine that evidence.

26. Miss LAM YICK LING was, in April 1991, a Secretary to Mr. Chan, a conveyancing clerk employed by the plaintiff. She has substantial experience, having worked for solicitors for ten years, and in conveyancing for about four years. She prepared all the correspondence in relation to the suit transaction, and received her instructions from Mr. Chan.

27. Miss Lam made it quite clear that the only reason the cheques were delivered at 2.30 p.m. was her belief that completion was before 3.00 p.m. She denied being told by Mr. Ho that completion was at 1.00 p.m. Had she been so told, she would have acted accordingly. In the event, she prepared the covering letter, placed it in an envelope with the cheques, left the envelope in an out-tray, and instructed a messenger to deliver it before 2.30 p.m.

28. She said that Ho "rang me after 2 and asked whether I had delivered the money yet, and I went to check, and I found the letter had gone and I told Mr. Ho I believed it was on the way and he said the time was fixed for 1.00 p.m. and his client was waiting to sign. I was surprised but he didn't talk about forfeiting the deposit". She added that she responded by saying: "Is it truly at one?". She said she believed that this call was around 2.05 or 2.10.

29. The next thing she heard about the matter was at about 5.00 p. m., after she telephoned Mr. Ho, on instructions, to ask for the keys. Mr. Ho then informed her that his client would not sign and that the deposit would be forfeited. "He said he would send a letter, and then the assignment and the money arrived".

30. She denied that Ho had told her on the morning of 18 April that completion was due at 1.00 p.m. She was sure that she had received a call from Ho at 2.05 or 2.10 p.m. that day, but she could not remember if she had gone out for lunch. She could not remember how many other completions she had to attend to on that day, and she could not remember whether it was a busy time for conveyancing, generally.

31. I was not impressed by Miss Lam. 1found her evasive, vague, forgetful, and inarticulate. I formed the impression that she was not being truthful about this alleged conversation with Ho at 2.05 or 2.10 p.m. If it took place, it would have been a matter of the utmost significance, and yet there is not a mention of it in the letter sent by Mr. Sam Leung, on 18 April 1991, in reply to the letter accepting repudiation which had arrived at his office earlier, at 4.00 p.m. on 18 April.

32. The letter of recission must inevitably have caused great consternation. Hence the reply thereto by Mr. Sam Leung, the principal of the firm. Presumably, his reply was based on enquiries which he made. He must have spoken to Miss Lam, the person who had been handling the transaction, and thus he claims in his letter that since instructions for splitting the cheques had only been received at 11.46 p.m., "it is natural that we were only able to deliver the cheques representing the balance of purchase price at time after 1.00 p.m."

33. This was simply not true. Miss Lam herself conceded that her ability to complete was not hampered by the split cheque instructions. She said that she received those instructions by fax at 11.39 a.m.

34. Mr. Leung was therefore either lied to by Miss Lam or decided on his own iniative that this was the only excuse. But there was no mention, in his letter, of the crucial allegation that the delay had, in any event, been waived at 2.05 or 2.10 p.m. I would have expected Mr. Leung to refer to this matter in the following way : "We were late because of the need to draw split cheques. But when Mr. Ho spoke to Miss Lam at 2.05 p.m., he specifically waived the 1.00 p.m. completion, after she told him that the, cheques were on the way." I am satisfied that there was no such response from Mr. Leung, because Miss Lam didn't mention any such thing to him at that time.

35. I am satisfied that the cheque splitting excuse is without any merit whatsoever. It could only have taken a few minutes for five cheques to be drawn. But it is significant that it was the only excuse given, and the only matter raised.

36. HO POON YAM, the conveyancing clerk who acted for the defendant, gave far more sensible and credible evidence about the transaction. He said that he told Miss Lam on the morning of 18 April that completion had to take place before 1.00 p.m., and that kiss Lam said there would be no problem, although she was under the impression that it was before 3.00 p.m.

37. In the event, when there was no delivery before 1.00 p.m., he telephoned at 1.15, and was told that all persons who were handling the transaction were out. His client was getting angry and was in a hurry. He telephoned again at 2.00 p.m. but could still not make contact with anyone with whom he could discuss the problem. A decision was then made to accept the repudiation and at about 2.10, he was given instructions to prepare a new assignment.

38. Mr. Ho was not shaken by cross-examination, and, as I have indicated, I much preferred his evidence to that of Miss Lam. I am quite satisfied that if Miss Lam had told him that the money was on the way, he would have sought his client's instructions, as he said. I also consider it highly likely that the defendant would have waived the repudiation in those circumstances, rather than go to the trouble of incurring further legal expense and making other arrangements with her bank. I am satisfied that there was no such call, and that no extension of time was granted, in the manner alleged.

(4) Acceptance of repudiation

39. On behalf of the plaintiff, it was submitted by counsel that this was his strongest point. In a nutshell it is this: that since the cheques arrived before 2.30, and since they were not returned until approximately 4.00 p.m., the contract continued in force until 4.00 p.m., insofar as the receipt of the cheques was "an unequivocal act of acceptance of performance by the plaintiff and the chance to retract from this position is lost."

40. In support of this extraordinary proposition, counsel relied on paragraphs 1702, 1704 and most especially 1708 of Chitty on Contracts 26th Edition. Paragraph 1708 reads as follows:

"Acceptance of repudiation. Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must normally make his decision known to the party in default ("accept the repudiation"). Unless and until this is done the contract continues in existence, for "an unaccepted repudiation is a thing writ in water". Acceptance of a repudiation must be clear and unequivocal. But, once made, it cannot be withdrawn."

41. It will be recalled that Ho said that by the time the cheques had arrived, the defendant had already left his office and gone to the bank to make arrangements to meet her obligations to the head vendor. He said that he received the letter with the cheques at 2.45 p.m., prepared a reply, and had it typed and despatched. It is not in dispute that it arrived at S. Leung & Co. at 4.00 p.m.

42. It is only necessary to say two things about this matter. The first is that Ho's letter (page 41 of the agreed bundle) is a clear recission of the agreement, an acceptance of the plaintiffs repudiation. Secondly, I am satisfied that Ho acted as expeditiously in all the circumstances as could reasonably be expected. To suggest that he should have sent back the cheques even earlier is quite unrealistic. It is even more unrealistic to suggest that by accepting the cheques, in the sense that he permitted the letter containing them to be opened and read, he unequivocally accepted performance by the plaintiff. I reject the submission that this conduct must be regarded as affirmation and waiver, thereby resulting in estoppel. If a decision is taken to accept repudiation, obviously it is a "thing writ in water" unless and until it is communicated to the other side. But if the other side happens to perform before the communication of acceptance is sent, that does not amount to affirmation or waiver. To put it another way, a repudiation is not necessarily waived by late performance, if the communication of acceptance of the repudiation comes after such late performance. This submission appears to be based upon a very literal interpretation of paragraph 1708 of Chitty, which suggests that late performance can somehow waive an earlier repudiation unless there is instant acceptance of same. That cannot be the law. The acceptance of repudiation must surely be within a reasonable time in all the circumstances. Whatever performance is tendered between the repudiationand the acceptance thereof is entirely  irrelevant, unless the reaction thereto indicates an unequivocal waiver. The reaction of HO in the present case was, in my view, nothing of the sort. On the contrary, his acceptance of the repudiation was clear, and made within a reasonable time thereof.

43. Accordingly, I find for the defendant on the claim. I decline to decree specific performance and I order that the deposit be forfeited.

44. I will hear Counsel on the effect of this finding on the counterclaim, as well as on costs.

45. I must finally add that the plaintiff is an entirely innocent victim of his solicitors negligence. He should be fully compensated for the loss of his deposit, the loss of the flat; and all his costs. I can only express the hope that further litigation will not be necessary in order for that to happen.