YAU FOOK HONG CO., LTD., AND OTHERS v. PANG CHEUNG SO

Civil Appeal Nos. 28, 29, 30 of 1986

Practice and procedure - vendor and purchaser - summary judgment - scope of R.S.C. 0.86.

An application for summary judgment is properly brought under 0.86 where a vendor of land accepts a repudiatory breach of an agreement by the purchaser and seeks a declaration that the purchaser has repudiated the agreement so that he is released from further liability, followed by a claim for damages which flow from the rescission. The word "rescission" in paragraph (b) of 0.86 r.1(1) is not to be confined to its narrow meaning of rescission ab initio.

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JUDGMENT

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Fuad, J.A.: (delivering the judgmen of the Court)

1. These three appeals which we heard together concern the same narrow point: the true scope of R.S.C. 0.86.

2. The Appellants (who are Limited Companies and who are represented by the same firm of solicitors) and the Respondents (one couple and two individuals), on various dates between March 1980 and June 1982, entered into sale and purchase agreements in writing; each in much the same terms, in respect of three flats in different parts of Hong Kong.

3. The purchase price of the cheapest of the flats was $243,720 and that of the most expensive was $265,320. Each agreement provided for the payment of a sum of money "as a deposit and in part payment of the purchase price" upon signing. The balance of the purchase price was to be paid, in two cases, by 180 equal monthly instalments; in the third case different arrangements were made - part of the outstanding amount was to be paid by 12 equal monthly instalments, and the balance by a specified date. There was provision for the payment of interest. The Respondents were allowed into possession of their respective flats as licensees.

4. Each purchaser fell into arrears. Clause 8 in each agreement began in the same way:

"             If from any cause whatever other than non-completion caused by the default of the Vendor the Purchaser shall fall to make the payments herein before provided of any further deposit, instalment of the purchase money and interest thereon on the due date thereof or shall fail to perform or observe any of the terms and conditions herein on his part to be performed or observed, the Vendor (without prejudice to any other right or remedy available to him) may by seven days' notice in writing to the purchaser at his last known address in Hong Kong determine this Agreement and the Vendor shall thereupon become entitled to forfeit absolutely the deposit and all other monies (if any) paid by the purchaser to the Vendor pursuant to his Agreement and to re-enter upon the said premises and repossess the same free from any right interest or licence of the purchaser therein and (without tendering an Assignment to the purchaser or his solicitors) resell the said premises either wholly or in parcels and either by public auction or private contract or partly by public auction and partly by private contract with power upon any such sale to make any stipulation as to title or evidence or commencement of title or otherwise and any deficiency in price and all expenses attending such resale (s) shall be borne by the purchaser and shall be recoverable by the Vendor as and for liquidated damages......."

5. The Vendors demanded payment of the arrears from each purchaser, but these demands were not met. In one case only (Civil Appeal No. 30 of 1986) the Vendor gave notice of determination of the agreement in the manner provided for in Clause 8, and therefore pleaded and relied upon that clause. In the other two cases the Vendors relied upon their common law rights.

6. Each Statement of Claim which accompanied the Writs recited the facts and sought the declarations to which we will presently refer. In Civil Appeal Nos. 28 and 29 of 1986 these were claimed in the alternative to a claim 'for the amounts outstanding under the agreements. The declarations sought were as follows:

7. In all three cases

8. In Civil Appeal Nos. 28 & 29 of 1986

9. In Civil Appeal No. 30 of 1986

Interest on the outstanding amounts was also claimed in each case, and damages. In one case (Civil Appeal No. 28 of 1986) an order for vacant possession of the flat was also sought; the purchasers of the other flats had already vacated their flats before the matter came before the Court.

10. The Vendors each took out a summons under 0.86 for an Order in terms of the Minutes of Judgment that were attached. The applications were supported by affirmations stating the facts and exhibiting the agreements, the demands for payment of the balance due under the agreements, and the letters before action.

11. None of the purchasers appeared in answer to the summons, and in each case Master O'Donnell granted Orders in the following terms:

In Civil Appeal No. 28 of 1986 there was also an Order for vacant possession.

12. The Vendors appealed to the Judge in Chambers seeking a variation of the Master's Orders. The words emphasised in the sample Order just read did not appear in the Minutes submitted in the 0.86 application. They were added by the Master because he felt that there should be some supervision by the Court over the prices at which the flats were sold. The Master did not accept submissions that (a) the Court would be in a position to scrutinize the sale prices when damages were being assessed, (b) Clause 8 of the Agreements did not contain such a restriction.

13. The same submissions were made to the Judge in Chambers, and the variation sought in each Order was that only if the sale was by private treaty would the sale price be subject to the Court's approval. The impracticability of the original Orders in the case of public auctions was pointed out: potential bidders might be deterred from bidding and if the Court did not approve the price more than one auction night have to be held, costing time and money.

14. When the appeals were opened before His Honour Judge Downey, sitting in Chambers as a Deputy Judge of the High Court (the Purchasers were again absent) the learned Deputy Judge invited argument upon the question whether the application for summary judgment in each case had properly been brought under 0.86.

15. Counsel for the Vendors relied on the first sentence in note 86/1-7/1 of the 1985 edition of the supreme Court practice which is as follows:

"It should be noted that the heading of this Order includes 'etc.'. The Order should be used not merely for specific performance, but for relief arising out of an agreement within r.1(1)(a)."

It seems that this note, for which no authority is cited, found its way in to the White Book for the first time in the 1982 edition.

16. About this submission, the judge said this in his judgment:

"With respect to Miss Eu and the learned editors of the White Book, the scope of the Order must be determined by the words of the Order, and not simply by an abbreviation in the heading. In my view, rule 1(1) confines the Order to five types of relief, namely (i) specific performance; (ii) rescission; (iii) forfeiture of deposit; (iv) return of deposit; and (v) damages, so long as they are claimed as an alternative to specific performance. With one possible exception, the claims indorsed on the writs in these cases are not within these 5 categories. By reading it generously, instead of literally, the declaration that the deposits had been lawfully forfeited, could be treated as a claim for the forfeiture of the deposits, and therefore within the Order."

17. Counsel had also contended, in the alternative, that provided the writ was endorsed with one of the reliefs mentioned in 0.86,r.1(1), the Court had power to grant that relief, and any other relief sought in the same action because 0.86, r.4 said: "....... may give judgment for the plaintiff in the action". The judge rejected this contention in these words:

"In my view, these words of rule 4 cannot properly be construed so as to enlarge the scope of the Order in the way suggested. Furthermore, to do so would give the Court discretion to enter judgment under Order 86 in those cases where other Orders prohibit or restrict the granting of summary judgment or judgment in default: c. f. Order 14 rule 1(2); Order 13, rule 6. The Rules Committee cannot have intended that a plaintiff could get summary judgment on a claim based on an allegation of fraud, merely because it is joined with a claim clearly within Order 86."

18. The Vendors in each case now appeal to this Court on the ground that the claims were such that applications for summary judgment under 0.86 had been properly brought.

19. For convenience, we set out the provisions of 0.86, rr. 1 and 4:

20. It will have been seen that this procedure is broadly similar to the summary judgment procedure provided for by 0.14. It was first introduced' in the late 1920's as 0.14A. The scope of the Order was extended in 1962 so that a claim for rescission or forfeiture could be made without the necessity of claiming specific performance The Order was further widened in 1965 by including within its embrace agreements for the exchange of property and for the grant or assignment of a lease.

21. When 0.14 is compared with 0.86, there are some important differences. We mention some of them:

22. As to the scope of 0.86, there is one matter which can, in our view, be got out of the way quite quickly. If it is proper to attach any weight at all to the "ETC." appearing in the heading of the Order (and, in relation to statutes, there is authority for the proposition that a hearing can be used as an aid to construction, though it must not be allowed to control clear words) we think that no assistance whatever is afforded by its presence. It seems, reasonably clear that "ETC." was inserted after "ACTIONS FOR SPECIFIC PERFORMANCE" to cover the actions for which provision is made in paragraphs (b) and (c) of r. 1(1) of the Order. It may be that the learned authors of paragraph 86/1-7/1 of the White Book are saying no more than that. We respectfully agree with the judge that the scope of the Order must be determined by its terms.

23. In the task of construction, we derive assistance from the judgment of Upjohn J. in Robshaw Brothers Ltd. v. Mayer [1957] Ch. 125, cited with approval by Brightman J. (as he then was) in Doyle v. East [1972] 1 W.L.R. 1080. In construing the words "sale or purchase" in the old 0.14A, Upjohn J. said, at p.131:

".......I approach the problem certainly with a desire to give the order as wide an ambit as possible, for it is a procedural provision, and those who practice in the Chancery Division know that it is of the greatest possible utility in enabling plaintiffs, where they have reason to believe that there is no defence to the action, to get judgment in a summary way. If I thought I could properly do so, I should certainly extend the ambit of the rule to cover this case. I come back, however, to the question of construction. I am really being asked to give to the phrase sale or purchase' not its plain prima facie meaning of sale or purchase for money, but to cover a transaction for valuable consideration. The order does not use that phrase. I can find no context which would entitle me to extend the prima facie meaning of 'sale or purchase' in this order. I cannot see how I can enlarge it, for instance, to include an exchange which plainly is not a sale or purchase. Nor, for instance, could I extend it to the case of a transfer in consideration of what is not normally described as a sale or purchase, e.g., marriage. I must give to these words their strict primary meaning, and that is sale or purchase in consideration of money. Accordingly the preliminary point succeeds, and I must dismiss this application under R.S.C., Ord. 14A."

We will respectfully adopt the same approach.

24. Mr. Litton's main contention before us was that the statements of Claim properly construed were in fact actions began by a writ indorsed with a claim for the rescission of an agreement for the sale and purchase of property, thus bringing them within 0.86, r. 1(1)(b), for here, what the Vendors were seeking was to be relieved, through an acceptance of the Purchasers' repudiation of the contract by their conduct, of all further liability thereunder - and this, he submitted, was commonly called "rescission".

25. The point is discussed in Halsbury (4th edition) vol. 44, paragraph 522:

"522. Rescission and repudiation. The word 'rescission' is used in two different senses. In the strict sense, it means the exercise by a party to a contract of a right to have the contract avoided ah initio. Such aright may arise by virtue of a term in the contract itself or for some reason such as fraud, misrepresentation or mistake. A person who has a right to rescind the contract in the strict sense will lose that right if, at a time when he knows that he has the right of rescission, he affirms the contract by taking some step which indicates an intention to proceed with it. The commencement of an action claiming specific performance of a contract clearly affirms the contract, so that rescission in the strict sense cannot in practice be claimed as alternative relief in an action for specific performance.

 

            'Rescission' is, however, frequently and confusingly used in a broader sense to describe a different act, namely, the acceptance by one party to a contract of a repudiatory breach of contract by the other party. Acceptance of repudiation discharges both parties from further performance of their executory obligations under the contract, but the contract is not avoided ab initio and the innocent party may claim damages for breach of contract. A plaintiff may claim both specific performance and rescission (in the sense of acceptance of repudiation) in the alternative, but as these claims are inconsistent with each other he must elect between them at the trial if he has not done so previously.

 

            A person pursuing a claim for specific performance is treating the contract as still on foot, and therefore cannot elect to rescind after the defendant has remedied his breach and is able and willing to perform his part of the contract. If the repudiatory breach is not of a continuing nature, the innocent party will be treated as having affirmed the contract and lost the right to rescind if, after acquiring full knowledge of the breach, he takes steps which indicate an intention to proceed with the contract or delays in exercising the right to terminate it............."

26. As we read 0.86, r.1 (1) (b) we do not understand the word "rescission" there employed to be limited to rescission in its strict sense, that is to say rescission ab initio. The fact that there is a clear recognition of the use of the word "rescission" in a broader sense is demonstrated by Lord Wilberforce in Johnson v. Agnew [1980] A.C. 367, where he said, at pp. 392-393:

"At this point it is important to dissipate "a fertile source of confusion and to make clear that although the vendor is sometimes referred to in the above situation as 'rescinding' the contract, this so-called 'rescission' is quite different from rescission ab initio, such as may arise for example in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in law as never having come into existence. (Cases of a contractual right to rescind may fall under this principle but are not relevant to the present discussion.) In the case of an accepted repudiatory breach the contract has come into existence but has been put an end to or discharged. Whatever contrary indications may be disinterred from old authorities, it is quite clear, under the general law of contract, that acceptance of a repudiatory breach does not bring about 'rescission ab initio'."

27. Later in his speech at page 398, Lord Wilberforce, when dealing with an argument based on irrevocable election, concluded his comments thus: "The fact is that the election argument proves too much. If it were correct it would deny the vendor not just the right to damages, but the right to 'rescind' the contract, but there is no doubt that this right exists: what is in question is only the right on 'rescission' to claim damages." And Lord Wilberforce uses the words "rescind" and "rescission", in inverted commas, in the wider sense, too, at page 399.

28. Buckley L.J. used "rescind" in its second sense in Capital Properties v. Swycher [1976] Ch. 319, one of the cases overruled by the House of Lords in Johnson v. Agnew. He said at p. 327:

"It is not in dispute that a vendor can, if he so chooses, seek an order of the court rescinding the contract at this stage. In this context the word 'rescind' does not import treating the contract as though it had never been made: it means that the vendor will be permitted to retain the land on the basis that he is no longer bound to perform his part of the contract in consequences of the purchaser's repudiation of it. I use the word in that sense in this judgment."

29. If we are right in declining to confine "rescission" as employed in 0.86, r.1(1)(b) to its narrow meaning of rescission ab initio, construing the word rather in the sense of the termination or discharge of the contract brought about by the acceptance by one party of a repudiatory breach by the other party, a number of questions fall for decision. Were the claims indorsed on the writs for "rescission" since that word was not used, and since declarations were sought? We think that they were. When the phraseology of the declarations asked for are examined, their substance shows that the Vendors were seeking recognition from the Court that they were no longer bound to perform their part of the contracts on account of the purchasers' repudiation. Nor do we think that the Vendors' applications should fail because they were not asking in terms for rescission but for declarations that they were entitled to relief amounting to rescission in its broader sense. The fate of an application of this kind should not, in our view, depend on such fine distinctions.

30. We have concluded that the Vendors' claims were in effect "for rescission". Are they barred from employing the useful 0.86 procedure because their claims for rescission are followed by claims for damages which are not alternative to, but flow from, the rescission? In this context, we feel it is important to recall that Johnson v. Agnew has now emphatically confirmed that in the circumstances we have here, the Vendor can treat a purchaser as having repudiated the contract, accept the repudiation and claim damages for breach of contract. Can it be, that since this decision,' a plaintiff claiming "rescission" cannot make use of 0.86 if he also claims damages to be assessed for breach of contract? We think that this would be a strange and unsatisfactory result, and one which is not dictated by a reasonable interpretation of 0.86.

31. On facts such as those before us, it is difficult to imagine what advantage would accrue to either party if the position were otherwise. Unnecessary costs and delay would be occasioned if a plaintiff in such circumstances were forced to wait and to apply for judgment in default of acknowledgment of service or of filing a defence. Provided the claim can be brought within paragraphs (a), (b) or (c) of 0.86, r.1(1) we find no impediments in the Order to the Court granting any appropriate relief which flows from,` and is not alternative to, the relief of rescission.

32. We conclude that the Orders made by the Master, with the modifications discussed and formulated during argument before us, should be restored. None of the modifications are, of course, to the detriment of the purchasers, and it will now be clear that in the assessment of damages, they will be given credit for all the sums they have paid under their agreements.

33. We would comment that in a case of a clear breach, of the kind we have here, of a sale and purchase agreement, if the procedure provided for in 0.86 is desired to be followed, it should be simple enough to so frame the Statement of Claim that there is no doubt about the applicability of the Order. We were told by Mr. Litton that in Civil Appeal Nos. 28 and 29 of 1986, where the amounts outstanding under the agreements were the first relief claimed, these were, in effect, claims for specific performance. We would only say that none of us have seen a claim for specific performance pleaded in that manner.

34. Before taking leave of these appeals, we venture to say that it may be desirable for the Rules Committee to consider whether any modifications need to be made to 0.86 in the light of the decision of the House of Lords in Johnson v. Agnew, to clarify the position, for it may be that what is now paragraph (b) of 0.86, r.1(1) was drafted on the state of the authorities which held that there could be no right to damages when rescission of an agreement was claimed.

35. As to costs, the Master ordered the Purchasers to pay the costs of the actions and the costs of the 0.86 proceedings. The Judge in Chambers ordered that the costs of the appeals should be costs in the cause. The learned Deputy Judge did not have the benefit of the submissions addressed to us, and the pleadings and Minutes of Judgment left something to be desired. The purchasers were in no way responsible for the fact that these appeals had to be brought; and modifications had to be made to the Orders. And so, in allowing the appeals to the extent indicated, we make the following orders nisi as to costs - that the Master's orders should stand; that the orders of the Judge in Chambers should be set aside; and that there be no order as to costs of the appeals to the Judge in Chambers and of the appeals to this Court.