NICE FORTUNE DEVELOPMENT LTD. v. STABLE NETWORK LTD.

1993, No. 34
(Civil)

H E A D N O T E

1. A Mareva injunction obtained by a vendor's creditors prohibiting the depletion of its assets below a certain level is not breached when, by arrangement with those creditors and to the knowledge of both vendor and purchaser, a sum up to that level is, simultaneously with completion, preserved out of the purchase money for those creditor's protection.

2. Discussion of the rule in Vyse v. Wakefield (1840) 151 ER 485 and the exceptions thereto.

IN THE COURT OF APPEAL

1993, No. 34
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. This case, in which we have had the advantage of very able arguments on both sides, concerns an agreement for the sale and purchase of a unit in an industrial building. On the afternoon before the date fixed for completion, the plaintiff vendor's creditors obtained from Mayo, J a Mareva injunction against the vendor. As a result of the impact of that injunction as perceived by the parties to the agreement at that stage, completion did not take place on the day fixed for it, neither party offering to complete on that day. That left either of them free to call for completion upon reasonable notice if itself able to complete. The vendor gave such notice. The defendant purchaser did not comply with it. And the vendor rescinded the agreement and forfeited the purchaser's deposit.

2. The purchaser defended its non-compliance with the notice: first, on the basis that the notice was bad because the Mareva injunction prohibited completion; and, secondly, on the basis that it was entitled to, but had never received, notice that the tenant who was in occupation at the time of the agreement for sale and purchase had in fact vacated the unit.

3. The argument that the Mareva injunction prohibited completion is untenable. Strictly speaking, the injunction order is so unhappily worded that it left the vendor free to dispose of any asset save those below the value of $650,440, which this unit was not. But let us assume that what the order achieved was a prohibition of depletion of assets to a level below that figure. Even then, there could be no breach by completion since, as the purchaser was made aware from the start, there was in place throughout an arrangement whereby, simultaneously with completion, funds in that sum of $650,440 would be preserved out of the purchase money for the protection of those whom the Mareva injunction sought to protect, and they were not only content with that arrangement but appeared very eager to see it implemented.

4. What is left is the argument as to notice. That argument is equally untenable. To begin with, there is no express provision in the agreement for sale and purchase for any such notice in circumstances such as those which obtained here. So there is an argument based on implication. But here the difficulty in the way of the purchaser is that the agreement expressly provides for such notice in the situation where completion cannot take place on the date fixed for it because the tenant is still there, the purchaser chooses to wait until the tenant goes, and the tenant eventually goes. If notice were needed not only in that situation but also in other ones, then there would be no reason whatsoever for the express provision for notice in that particular situation. Mr Chain for the vendor succumbed to the temptation to use Latin, and prayed in aid the formula expressum facit cessare tacitum, in other words, an express provision excludes the implication of any provision to the same effect.

5. In the course of the argument, however, possibly with some encouragement from me, he said that the argument was, in effect, this. If notice were necessary generally, why was it necessary to provide for it in the special circumstances to which I have referred? So if he retains his taste for Latin, he might, I suppose, ask rhetorically: quare benevolentiae causa, in other words, why for goodness' sake?

6. Failing implication, the purchaser, whose case has been argued with skill and persistence by Miss Ang, seeks to rely on a positive rule of law requiring notice. The learned editors of the 26th edition of Chitty on Contracts deals with this matter in para. 1498 at p. 942. There they quote a statement of Parke, B in Vyse v. Wakefield, a decision of the Court of Exchequer in 1840, which it is convenient to look at as reported in the 151st volume of the English Reports at p. 485. What Parke, B said, as reported at p. 490, is this:

"The general rule is, that a party is not entitled to notice unless he has stipulated for it; but there are certain cases where, from the very nature of the transaction, the law requires notice to be given, though not expressly stipulated for".

And the learned editors of Chitty, by reference to a number of other cases, continue thus:

"Thus, where only one party has knowledge the relevant facts, notice is necessary; so, if a landlord agrees to repair the inside of a house or to keep drains in repair, the tenant must give notice of the disrepair, since 'the landlord is not the occupier of the premises and has no means of knowing what is the condition of premises unless he is told.' Notice to the landlord of the need for repair is also required whether the covenant to repair is inserted by statute into the contract of letting; this rule applies whether the defect is latent or patent. But notice of disrepair is not necessary where the landlord retains in his own control that part of the premises whose defective condition causes the damage."

The contention here is that only the vendor would know whether the tenant has left. And the short answer to that contention is that it is wrong. Either the tenant was there or he was not there; and the way to have found out was to go and have a look. That is something which the purchaser could have done as well as the vendor. So reliance on this rule fails.

7. As I have indicated, there is nothing in the argument that notice was needed. But if there had been something in it, the short answer to reliance upon it would be that raised by my Lord, the Vice-President in the course of the argument. And it is this. The vendor would have been in no position to complete or to assert that it was ready and willing to complete unless it could deliver vacant possession. By the notice which it served calling for completion, therefore, it necessarily made that assertion. So if notice that the tenant had gone had to be given, then such notice had been given.

8. There is no need in these circumstances to consider the alternative argument raised by the vendor that the purchaser's remedy would in any event be limited to damages. That does not arise because it is clear that the purchaser has no right to any remedy. What remedy may or may not have been available if the purchaser had some right, does not arise.

9. Leong, J, by his Order dated January 24 this year, which is the order from which this appeal lies, refused to give the vendor any relief whatsoever. The way in which the relief sought by the vendor is formulated is somewhat confused on the face of its summons. But it is clear - and was clear to everyone throughout - that if the vendor is right on all points relating to whether there is any right in the purchaser, then the result must be that the plaintiff purchaser's claim be dismissed and that there be judgment for the defendant vendor on its counterclaim. The vendor has indeed succeeded on all such points. And therefore I would allow this appeal and order that the claim be dismissed and that there be judgment for the defendant on the counterclaim.

Kempster, V.-P.:

10. I agree with the judgment just given and the order proposed by my Lord, Bokhary, JA. There is nothing I can usefully add.

Litton, J.A.:

11. The date for completion of the sale was August 18, 1992. It is common ground that the agreement was alive despite failure on each side to tender performance on the completion date. The whole case therefore turned on the legal effect of the notice served by the vendor through its solicitors dated August 21, 1992. It is in these terms:

" We, the Solicitors for STABLE NETWORK LIMITED whose registered office is situate at Unit B on the 9th Floor, 476 Castle Peak Road, Kowloon, Hong Kong ('the Vendor') hereby give you notice as follows:-

1. The Vendor is willing and ready to execute an Indenture of Assignment to your client NICE FORTUNE DEVELOPMENT LIMITED whose registered office is situate at 10th Floor, No. 7 Fa Yuen Street, Kowloon, Hong Kong ('the Purchaser') of the Property described in the Schedule hereto ('the Property') contracted to be purchased by your client, the Purchaser by an Agreement for Sale and Purchase dated the 23rd day of July 1992 and made between the Vendor of the one part and the Purchaser of the other part in accordance with the terms and conditions of the said Agreement.

2. The Vendor has duly deduced the good title of the Property and Messrs. Yaddy Cheung & Co. has accepted our arrangement as to balance of purchase price upon completion of the sale and purchase.

3. We, the Solicitors for the Vendor hereby demand you forthwith to tender such Assignment for our approval and execution and to pay the balance of purchase money in accordance with the said Agreement.

4. If you fail to comply with this notice within THREE WORKING DAYS from the date hereof, the deposit of HK$338,000.00 paid by the Purchaser will be forfeited to the Vendor under Clause 7 of the said Agreement and the Vendor will either rescind the contract or resell the Property in accordance with the provisions of the said Agreement.

5. All terms and conditions in the said Agreement shall remain in full force and effect."

12. The "Messrs Yaddy Cheung & Co." referred to in para. 2 of that letter were the solicitors for the creditors in whose favour a Mareva injunction had been obtained on August 17, 1992. On the day prior to the date of this notice, an arrangement had been made, agreed to by those creditors, whereby upon completion of the sale a sum of $650,440 would be retained by the vendor's solicitors as stakeholders pending the outcome of the action.

13. In my judgment, with this arrangement on foot, there could have been no question of any breach of the Mareva injunction if the parties had proceeded to completion. It is plain that the interests of those creditors were fully protected as intended by the Mareva injunction, and they had expressly agreed to the arrangement.

14. It was said on behalf of the purchaser that the notice was nevertheless ineffective because there was an obligation falling on the vendor to give notice to the purchaser that the tenant had vacated the premises. Failing such notice the contention is that the notice requiring completion dated August 21, 1992, had no legal effect.

15. The Sale and Purchase Agreement is wholly silent as to the requirement for such a notice and, like my Lord, Bokhary, JA, I can see no room for implying such a requirement. There was no necessity for such a notice in order to give practical effect to the contractual arrangement in the Sale and Purchase Agreement. Accordingly, in my view, once the three days' notice had expired, the vendor was entitled under the agreement to rescind the agreement and forfeit the deposit, which they have done.

16. I accordingly agree that the vendor is entitled to judgment on its counterclaim; and it must follow that the action itself must be dismissed.

Kempster, V.-P.:

17. The appeal is allowed. The plaintiff's action is dismissed, declarations will be made as prayed in the counterclaim.

18. The appellants will have their costs of the appeal and of the action. When we say "of the action", that means the claim and counterclaim.