YUEN KONG LING CANA AND ANOTHER v. LAI KAM HON AND ANOTHER

1991, No.A7502

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H E A D N O T E

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WHEN AN ORIGINAL PURCHASER OF PROPERTY, BEFORE COMPLETION, SELLS ON TO A SUB-PURCHASER (OTHERWISE THAN BY ASSIGNMENT OF THE BENEFIT OF THE ORIGINAL CONTRACT), THE RISK OF DEFAULT BY THE ORIGINAL VENDOR DOES NOT PASS (UNLESS EXPRESSLY PROVIDED OTHERWISE) TO THE SUB-PURCHASER, BUT REMAINS WITH THE ORIGINAL PURCHASER, WHO WILL BE LIABLE TO THE SUB-PURCHASER FOR THE LOSS OF THE BARGAIN IF THE ORIGINAL VENDOR REFUSES TO COMPLETE.

1991, No.A7502

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. The plaintiffs in this action are disappointed sub-purchasers. Their claim in this action has now resolved itself into a claim for damages for loss of their bargain. They blame for this loss the 1st defendant, the original purchaser; or, alternatively, the 2nd defendant, the solicitor who acted for them about the transaction. So far as the original vendor is concerned, neither the plaintiffs, nor the 1st defendant, have brought him into this action, so I am not in a position to decide, adversely to the original vendor, whether in fact the original vendor was to blame for what he did, which was, to put it shortly, to call off his sale to the 1st defendant on the ground that he had not received timeous payment. The refusal of the original vendor to complete the sale to the 1st defendant has made it, of course, impossible at any rate at present for the 1st defendant to complete his subsale to the plaintiffs.

2. Before turning to the facts I will say something about the way in which, in principle, a purchaser of property can turn his contract with his vendor to account before completing his purchase. First, he can, for a consideration, assign the benefit of that contract to a sub-purchaser. Secondly, and alternatively, he may himself enter into a separate contract of sale of the properly with the sub-purchaser.

3. In the first case, the risk of the original vendor defaulting passes to the sub-purchaser. If the assignment was a legal assignment, the sub-purchaser will be entitled to sue the defaulting original vendor directly. If the assignment was only equitable, the sub-purchaser will be entitled, with the agreement of the original purchaser, to sue the defaulting original vendor, in the name of the original purchaser, on giving the original purchaser a proper indemnity against the costs of the action. If the original purchaser will not agree to this, the sub-purchaser will be entitled to sue the original vendor anyway, but adding the original purchaser as a co-defendant. In one or other of these ways, all necessary and proper parties to the action, when the benefit of the original contract has been assigned to the sub-purchaser, will be brought before the court

4. In the second case, the risk of the original vendor defaulting remains with the original purchaser. The sub-purchaser will be entitled to sue the original purchaser (who, ex hypothesi, will be unable to complete the subsale) for damages for breach of contract. The obligation assumed by the original purchaser to the sub-purchaser is absolute (unless of course expressly qualified in the contract between the original purchaser and the sub-purchaser). The default of the original vendor will afford the original purchaser no defence to the sub-purchaser's claim for damages. But, instead of suing the original purchaser, the sub-purchaser can, if he chooses, and on offering the original purchaser a proper indemnity, sue the defaulting original vendor for specific performance, using the original purchaser's name. This is only an option; the sub-purchaser is not obliged to exercise it. He can, if he prefers, content himself with his remedy in damages against the defaulting original purchaser, leaving the original purchaser to make his own claim over against the defaulting original vendor, either in third party proceedings, or in a separate action.

5. I draw attention to these matters, because there were times during the argument when it seemed to me that the parties' legal advisers or some of them had, at best, only an imperfect appreciation of the relevant principles. With those principles in mind, I shall now set out my findings as to the facts of the instant case.

6. In July 1991, Wong Lun Hing ("the original vendor") entered into negotiations with Lai Kam Hon ("the original purchaser"), the 1st defendant in this action, for the sale by the original vendor to the original purchaser of No.81, Fourth Street, Section I, Fairview Park, Yuen Long, New Territories ("the property"). The solicitor instructed by the original vendor to act for him about the transaction was Boris Lui & Co. ("Boris Lui"), the 2nd defendant in this action. The solicitors instructed by the original purchaser to act for him were William Au & Co. ("William Au"). The negotiations were concluded by an agreement dated 29th July 1991 ("the Principal Agreement"). The contract price was $1,610,000, of which $30,000 had been paid as an initial deposit before the signing of the Principal Agreement. $131,000 was to be paid, as further deposit and in part payment of the purchase price, on the signing of the Principal Agreement. $1,449,000, being the balance of the purchase price, was to be paid on the completion date, which was to be on or before 25th September 1991. The place of completion was to be the office of Boris Lui, in Central, "or as they may direct". The Principal Agreement provided, by Clause 3, as follows:-

"3.(a)The Vendor declares that Messrs. Boris Lui & Co. are the Vendor's Agents for the purposes of receiving all monies payable to the Vendor pursuant to this Agreement including the balance of the purchase price which shall be paid on completion.

(b)The Vendor further declares that payment to such Agents of any deposit, instalments of the purchase monies and the balance thereof (if any) shall be a full and sufficient discharge of the Purchaser's obligations hereunder.

(c)The Vendor may revoke the authority of the Agents and appoint another solicitor as an agent in their place. No such revocation shall be valid unless :-

(i) it is in writing addressed to the Purchaser;

(ii) it is delivered to the Purchaser care of his solicitors. at least seven clear days prior to completion; and

(iii) it specifically identifies this Agreement."

7. Clause 7 provided that time should in every respect be of the essence.

8. Clause 28 provided that if the completion date was a normal weekday (as it was) completion should take place at or before 5 p.m. on that day. (As originally drafted, Clause 28 provided for completion at or before 4 p.m.; the time of 5 p.m. came in by amendment.)

9. Clause 32 provided that any payment due could be made either by a cashier order issued by a licensed bank in Hong Kong or a cheque drawn by the payer's solicitor for the relevant amount.

10. At the date of the Principal Agreement, the property was subject to a mortgage dated 1st May 1989 in favour of the Hong Kong Bank. This, of course, would have to be discharged on completion.

11. On 1st September 1991, the original vendor agreed to sell the property on to the plaintiffs ("the sub-purchasers") at the price of $1,680,000; an uplift of $70,000 on the price which the original purchaser had agreed to pay the original vendor. In the provisional sale and purchase agreement made between the original purchaser and the sub-purchasers on 1st September 1991, the date specified for completion was, again, 25th September 1991. (The sub-purchasers bought the property in order to live there.)

12. On 3rd September 1991, Raymond T.L. Tse & Co. ("Raymond Tse") in Yuen Long, solicitors, wrote to Boris Lui, stating that they were now the solicitors acting for the original vendor, in place of Boris Lui. They addressed their letter for the attention of a Miss Judy Lam a secretary who worked, not in Boris Lui's Central office, but in his Yuen Long office. On the same day, Boris Lui wrote to Norman Yung & Co. Solicitors, ("Norman Yung"), whose offices were in Central and who were now acting, in place of William Au, for the original purchaser, stating that Boris Lui (who had been introduced to the sub-purchasers by the broker who negotiated the deal) were acting for the sub-purchasers. They addressed their letter for the attention of a Mr Patrick Woo.

(What had happened was that Boris Lui, having originally acted for the original vendor, handed him over to Raymond Tse, and were now acting instead for the sub-purchasers.)

13. On 6th September 1991, Norman Yung, who by now knew that Raymond Tse had been instructed to act for the original vendor, wrote to Raymond Tse stating that they were now acting for the original purchaser in place of William Au. (What had happened here was that Patrick Woo had moved from William Au to Norman Yung, taking the original purchaser with him.)

14. On 11th September 1991, the original purchaser and the sub-purchasers entered into a Subsale Agreement for the sale of the property by the original purchaser to the sub-purchasers.

15. The Subsale Agreement recited the Principal Agreement and that the original purchaser had agreed to sell and the sub-purchasers to purchase the property. It provided, by Clause 1, for the sale of the property "subject to and with the benefit of the Principal Agreement".

16. It provided (by Clause 3 and the 4th Schedule) that the purchase should be completed at the offices of Norman Yung (which were in Central) on or before 25th September 1991 "between the hours of 9:30 a.m. and 4 p.m.". It had originally provided for completion to take place between the hours 9:30 a.m. and 3 p.m.; 4 p.m. came in by amendment. (It will be noted that, while the Principal Agreement fell to be completed before 5 p.m. on 25th September 1991, the Subsale Agreement fell to be completed before 4 p.m. on that date, so that if completion of the Principal Agreement was directed to be effected at a place more than an hour's journey from the place at which completion of the Subsale Agreement was to be effected, the sale would be in jeopardy. In fact, Raymond Tse did require completion at their office in Yuen Long, which was more than an hour's journey from Central.)

17. The Subsale Agreement provided, by Clause 6(a), that immediately after its signing, the property should be at the sub-purchasers' risk. It provided (by Clause 13) that time should in every respect be of the essence. It provided (by Clause 24) that Norman Yung were to be the original purchaser's agents for the purpose of receiving all monies payable to him pursuant to the Subsale Agreement, including the balance of the purchase money payable upon completion.

18. The Subsale Agreement also contained an important Clause 27; I shall set it out as it stands; but it must be borne in mind that references in it to "the Vendor" are references to the original purchaser and that references in it to "the Purchaser" are references to the sub-purchasers.

19. Clause 27 reads as follows :

"27. The Vendor hereby undertakes and warrants that:-

(a) The Principal Agreement is good valid and enforceable in full force and effect.

(b) The Vendor shall in all respects comply with all the terms and conditions in the Principal Agreement on his part to be observed and performed.

(c) The Vendor shall not without the prior written consent of the Purchaser:-

(i) make or agree to any modification or amendment to the Principal Agreement;

(ii) agree to the cancellation or termination of the Principal Agreement;

(iii) agree to waive or to release any of the obligations of the Head Vendor under the Principal Agreement;

(d) In the event of any breach or non-performance of any term of [sic] condition in the Principal Agreement on the part of the Head Vendor the Vendor will, upon being required by the Purchaser so to do, (at the cost and expense of the Purchaser and subject to the indemnity hereinafter contained) take all necessary steps and actions which are reasonable and prudent to procure the due performance and observation by the Head Vendor of his obligations and the terms and conditions under the Principal Agreement provided that the Purchaser shall indemnify the Vendor against all losses, costs, expenses, claims, damages, liabilities and actions which the Vendor may incur or sustain as a result of taking any such step or action."

20. The Subsale Agreement contained (in Clause 29) provisions similar to those contained in the Principal Agreement as to payment of the purchase money by cashier order or solicitors' cheque.

21. On 24th September 1991, Boris Lui (acting for the sub-purchasers) sent to Norman Yung a draft assignment for approval on behalf of the original purchaser and asked for instructions as to whom the balance price should be paid and how the cheques should be split. The draft assignment recited the Principal Agreement and the sub-sale and provided for an assignment by the original vendor direct to the sub-purchasers, the original purchaser joining in as "confirmor".

22. Also on 24th September 1991, Boris Lui (acting for the Hong Kong Bank) wrote to Raymond Tse informing them that the sum needed to discharge the existing mortgage, calculated up to 27th September 1991, was $414,483.43.

23. On 25th September 1991, Boris Lui wrote to the Hong Kong Bank, informing the Bank that the sub-purchasers had executed a mortgage in favour of the Bank to secure a loan of $1,100,000 from the Bank.

24. Also on 25th September 1991, Boris Lui wrote to Norman Yung a letter enclosing cashier orders or solicitors' cheques sufficient to meet the purchase price payable by the sub-purchaser and to discharge the existing mortgage. This letter, and the money, were delivered by Boris Lui's messenger (from his Yuen Long office) to Norman Yung at 3:37 p.m. in the afternoon of 25th September 1991.

25. I pause there. It will be remembered that completion of the sub-purchase had to be effected before 4 p.m. So far, so good. But the original purchase had to be completed by 5 p.m. Unless the money could be got to the original vendor, or to the solicitors (if any) authorized by the original vendor to receive it, by 5 p.m., the original vendor would become entitled to call the whole transaction off.

26. What actually happened was this.

27. When the messenger from Boris Lui arrived at Norman Yung, in Central, with the money, Patrick Woo (who, it will be remembered, had the conduct of the matter on behalf of Norman Yung) was aware that time was no short, although he claims (he made no attendance note to support this) that Judy Lam had told him that Boris Lui had "fixed up" things with Raymond Tse so that this would not matter. He therefore asked the messenger to take the money, straight away, to Raymond Tse in Yuen Long. The messenger agreed, without demur; and set off for Yuen Long as soon as he was instructed to do so, round about 3:45 p.m. But he arrived after 5 p.m., which was too late. And whatever Judy Lam may or may not have said to Patrick Woo, the original vendor did, indeed, call off the transaction.

28. Those are the facts. The central question in the case is whether the original purchaser is in breach of his obligations to the sub-purchasers under the subsale agreement, by reason of his failure to complete it. This was something which, after the original vendor had called the transaction off, it became for the present impossible for the original purchaser to do.

29. In my judgment, on these facts the original purchaser was in breach of his obligations to the sub-purchasers and plainly has no defence to the sub-purchasers' claim for damages.

30. Counsel for the original purchaser attempted to persuade me, first, that the sub-purchasers were the authors of their own misfortune, since it was the messenger from Boris Lui (who were acting for the sub-purchasers) who failed to deliver the money on time to the original vendor. But there is nothing in this. It was in no way the fault of the messenger that he failed to deliver the money on time; there simply was not sufficient time given to him in which to do it. It takes over an hour to get from Central to Yuen Long. And in any case, the messenger was acting in this connection on the instructions of the original purchaser's own solicitors, not on those of Boris Lui.

31. Counsel for the original purchaser attempted, secondly, to persuade me that, in effect, the only remedy of the sub-purchasers in the events which happened was to call on the original purchaser, pursuant to the provisions of Clause 27 of the Subsale Agreement, to sue the original vendor. There might have been some force in that argument if the agreement for sub-purchase had been merely an agreement for the assignment by the original purchaser to the sub-purchasers of the original purchaser's contract with the original vendor. But the agreement for sub-purchase here was not, or at any rate was not exclusively, of that nature. It clearly operated as an independent contract of sub-sale, with the risk of default on the part of the vendor remaining with the original purchaser until the sub-purchase was completed.

32. I shall therefore direct an enquiry as to damages, such damages to be assessed as at the date when the sub-purchasers lost their bargain: see Johnson v. Agnew [1980] AC 367, especially per Lord Wilberforce at p.401.

33. The sub-purchasers in the present case claimed specific performance of the Subsale Agreement and persisted in that claim until they elected at the trial to abandon it in favour of their remedy in damages. In my judgment, it was not unreasonable for them to pursue the remedy of specific performance past the date when they elected, as ultimately they did, to buy somewhere else in which to live instead: Cp Domb v. Isoz [1980] 1 Ch 548. I would therefore hold that their damages ought to be assessed as at the date of trial. The remedy of specific performance is afforded to a plaintiff who genuinely wants the property the subject matter of the action. It is not available to him as a means to obtain a financial windfall at the expense of a defaulting vendor. But here the possibility of the original purchaser obtaining a decree of specific performance against the original vendor remains alive. The sub-purchasers were in my judgment therefore entitled to the benefit of that possibility until, very sensibly, they elected to claim damages instead.

34. Since the sub-purchasers have succeeded in their claim for damages against the original purchaser, and since it is accepted by the sub-purchasers that, in that event, they have no claim against Boris Lui, I shall dismiss that latter claim.

35. In the course of the trial, it became apparent that the original purchaser indeed had, or thought he had, a remedy over against the original vendor, and indeed the original purchaser has sued the original vendor for specific performance. Further, it became apparent that the original purchaser, like the sub-purchasers, was seeking to blame Boris Lui for what went wrong. Insofar as the original purchaser's case is against the sub-purchasers (for who m Boris Lui acted) I have already held there is no substance in it. Insofar as it is some independent complaint, it has not been prosecuted in this action. I am, for these reasons, and although I heard much evidence on these aspects of the case, disinclined to make any findings of fact which might be thought to affect adversely the interests of the original vendor or Boris Lui (or, for that matter, Norman Yung) in any subsequent action which may arise as a result of the events which happened here. Of course, no such findings could bind anybody not a party to this action; but it remains undesirable, where this sort of problem occurs, for a judge to make findings of fact going further than is necessary for the purpose of resolving the dispute immediately before him.

36. I cannot part from this case without expressing my concern about the apparently common practice of conveyancers in Hong Kong of leaving to the last moment the task of getting ready the money necessary for a purchaser (or sub-purchaser) to complete his purchase. In Hong Kong, time is nearly always (and wisely or not) made of the essence in this connection and solicitors who act for purchasers or sub-purchasers should, in my judgment, advise their clients to be ready with their money not, as so often seems to happen, at the last minute, but well before that. If solicitors took this course, and the clients took some notice of what their solicitors told them, the sort of problem which arose in this case could easily be averted.