WINGHING INVESTMENTS LTD. v. LEE HOI WING AND ANOTHER

HCA 15600/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15600 OF 1999

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J U D G M E N T

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1.  In about early 1998, the defendants in these proceedings, Mr Lee Hoi-wing (“Mr H W Lee”) and Mr Li Tung-ping (“Mr T P Li”) were negotiating to sell a large plot of land in the New Territories to Winghing Investments Limited (“Winghing”).  The property in question, which was the remaining portion of Section C of Lot 604 in Demarcation District 85 (“the Property”), was not owned by either Mr H W Lee or Mr  T P Li, but by two Tsos, the Li Tak Kau Tso and the Li Tak Wo Tso. 

2.  At the time of the negotiations, and indeed when the formal agreement for sale and purchase of the Property came to be signed, neither Mr H W Lee nor Mr T P Li was in a position to sell the Property because neither of them were managers of the Tsos, whose previous managers had passed away in the early 1940s.  Further, in any event, sales of land owned by a Tso required the consent of the government acting through the relevant District Office, in this case the Northern District Office, pursuant to section 15 of the New Territories Ordinance, Cap. 97.

3.  It seems that at about the same time as it was negotiating the purchase of the Property, Winghing was also involved in negotiations for the purchase of three other properties from other vendors in the same area. 

4.  In order to obtain the District Officer’s consent to the sale, it would be necessary for Mr H W Lee and Mr T P Li to secure the agreement of the members of the two Tsos to their appointment as managers of the Tsos, and also agreement for the sale itself.  According to Mr H W Lee, this was no small undertaking, since there were some 38 members of the Tsos, about two-thirds of whom lived abroad, mostly in England but also in Holland and Australia.  Each of the members would need to be contacted so that the proposed transaction could be explained to them and their agreement to it obtained.  Mr H W Lee says that he informed a Mr Yeung, who represented Winghing in the negotiations, of these matters before the agreement was entered into, and told Mr Yeung that it could take as long as three to five years before everything was sorted out so that he and Mr T P Li would be in a position to convey the Property to Winghing.  Mr H W Lee says that he gave this time frame on the basis of his experience or knowledge of other transactions involving New Territories land owned by a Tso.  Mr Lee also says that at one point during the negotiations over the sale of the property in the early part of 1998, he suggested that Winghing could, if it wished, include a deadline of say one year in any agreement to be entered into, after the expiry of which Winghing would be under no obligation to proceed with the purchase.  Mr Lee says, however, that Winghing rejected this suggestion.

5.  Despite the hurdles which lay in the way of a successful completion of the sale, an agreement was reached for the sale and purchase of the Property at a price of about HK$170 per square foot, giving a total price of some HK$8,441,928 for the Property as a whole.  A provisional sale and purchase agreement was signed by Winghing and the Defendants, and an initial deposit of HK$100,000 was paid by Winghing to them.  Thereafter, a formal sale and purchase agreement was drawn up and eventually signed.  It took some time for this agreement to be signed by all the parties and although it was ready by April 1998 and signed by Mr H W Lee on 23 April 1998, it was not signed by Mr T P Li until 15 June 1998, apparently because he was away from Hong Kong for the intervening period.

6.  After Mr Lee and Mr Li had signed the formal sale and purchase agreement, it was sent to Winghing for signature.  It was eventually returned on 25 July 1998, duly signed by Winghing.  The agreement, however, bore the date of 15 June 1998.  Mr Cheng, the solicitor then acting for the vendors, who gave evidence before me, said that this was the agreed effective date of the agreement.  A further deposit of HK$744,192.80 (taking the total deposit up to 10% of the purchase price) was paid by Winghing to the Defendants’ then solicitors as stakeholders.

7.  The terms of the agreement reflected some of the matters to which I have referred.

8.  Thus, in the part of the agreement that sets out the parties to it, Mr H W Lee and Mr T P Li were respectively referred to as “intended managers of the Tsos”, making it clear that they were not, in fact, then managers of the Tsos.  Clause 3 of the sale and purchase agreement, which dealt with completion, was in the following terms:

“Completion of the sale and purchase of the property shall take place by way of undertakings of the solicitors for the respective parties subject to the usual Law Society qualifications at the office of the Vendor’s Solicitors at Messrs. Adrian Yeung & Cheng, Solicitors on or before the Completion Date and at or before the Completion Time below:-

Completion Date: within 14 days from the receipt of Vendor’s written notice to the Purchaser that the consent has been issued by the District Office pursuant to section 15 of the New Territories Ordinance Cap. 97.

Completion Time: 5:00 p.m. on Weekdays and 1:00 p.m. on Saturdays.

The Purchaser shall furnish to the Vendor draft assignment for the sale and purchase of the Property not later than 2 working days before the Completion Date.”

9.  Clause 30(1) was also relevant, and made it clear that all the parties were aware that Mr Lee and Mr Li would apply to the District Office to be appointed as managers of the Tsos, and thereafter obtain the District Office’s consent to the sale of the Property. 

10.  It is quite clear from those clauses that Winghing was well aware of the hurdles that lay in the path of a successful conclusion to the transaction by completion of the sale and purchase.

11.  Clauses 5, 14 and 18 of the sale and purchase agreement are also relevant for present purposes.  Clause 5 made time of the essence of the agreement.  Clause 14 set out the consequences of Winghing’s failure to complete the purchase, which included (among other things) the consequence that the Defendants would be entitled to forfeit the deposits which had been paid.  Clause 18 was an entire agreement clause, making it clear that the written agreement embodied the entire agreement between the parties, and excluding any preceding oral or written agreements.

12.  It is, however, to be noted that there is no reference in the agreement to the other properties which Winghing was purchasing from other purchasers.  The evidence on behalf of the Defendants was that there was no connection between this transaction and those other transactions, and that the various transactions for purchase of property by Winghing were in no way conditional upon each other. 

13.  After the agreement was signed, Mr H W Lee and Mr T P Li went about obtaining the necessary consents and agreement from members of the Tsos.  This took some time, but it seems that by about the end of January 1999 the necessary agreement from all members had been obtained.  Unfortunately, however, a mistake was discovered in that the agreement in respect of the appointment of new managers of the Tsos was not restricted to the appointment of Mr H W Lee and Mr T P Li, but included the appointment of a third person, who was not, in fact, party to the sale and purchase agreement.  It was thought, therefore, that it would be desirable to obtain fresh consents and agreements from the members of the Tsos, appointing only Mr H W Lee and Mr T P Li as managers of the Tsos.

14.  Mr H W Lee said in evidence that he informed Mr Yeung of Winghing of this problem, but that he was told by Mr Yeung not to worry about it and to go on with obtaining the fresh consents, so that the matter could proceed.  At all events, by 10 March 1999 all the necessary agreements from the members of the Tsos had been obtained and Mr H W Lee was able to lodge the necessary applications with the Northern District Office to enable the matter to be taken forward.

15.  Meanwhile, between the time when the sale and purchase agreement was signed and the submission of the necessary applications to the District Office, there had been a number of letters from the solicitors then representing Winghing inquiring about the progress in relation to the matter.  In one of the later letters, dated in January 1999, there was a complaint about the delay that had occurred.

16.  Mr H W Lee and Mr Cheng, the solicitor then acting for the Defendants, have both said that they did in fact keep Winghing informed of developments from time to time.  Mr Cheng said that he did so on more or less every occasion that a letter was received from Winghing’s solicitors inquiring as to progress.  Mr H W Lee said that for his part, he was in contact with Mr Yeung from time to time and informed him of progress in relation to the matter.  Both Mr H W Lee and Mr Cheng said that on each occasion when a progress report was given, Mr Leung, of Winghing’s then solicitors, always said that there was no problem and that they would like to be kept informed of progress.

17.  Mr Cheng also gave evidence to the effect that he informed Mr Leung of the fact that the applications had been lodged within a day or so of their being lodged when he had received copies of the application forms from Mr H W Lee.

18.  However, on 1 April 1998 new solicitors acting for Winghing came on the scene.  They wrote to the Defendants’ then solicitors stating that because of the delays that had taken place, which they said were due to breaches by Mr H W Lee and Mr T P Li of their obligations under the sale and purchase agreement, the purchasers were entitled to set a completion date and called for completion by no later than 30 April 1999.  This letter was received by the Defendants’ solicitors on 7 April 1999.  Mr Cheng says that he wrote in response on 12 and 22 April 1999 to protest about the unilateral setting of a deadline and to insist that the terms of the sale and purchase agreement should be observed. 

19.  On 21 May 1999, through its solicitors, Winghing purported to rescind the agreement on the basis of a breach of contract by the Defendants.  Notwithstanding this, the Defendants continued to progress the applications to the District Office for consent to the sale.  They eventually obtained the District Office’s consent on 27 October 1999 and on 30 October 1999, the solicitors then acting for them wrote to Winghing’s solicitors calling on Winghing to complete the sale and purchase of the property within 14 days, as required by clause 3 of the sale and purchase agreement.  Winghing, however, failed to do so.

20.  Winghing then went on the offensive, commencing these proceedings against Mr H W Lee and Mr T P Li, claiming that the agreement had been validly terminated by Winghing, and seeking the return of the deposits, or declarations that would entitle them to this.  The Defendants counterclaimed, alleging that it was in fact Winghing that was in breach by reason of its failure to complete when called upon to do so, and sought, among other things, declaratory relief which would have the effect of entitling them to retain the HK$100,000 preliminary deposit that had been paid to them directly, and to obtain the release from the stakeholders of the further deposit of HK$744,192.80, which had been paid when the sale and purchase agreement was signed.  The counterclaim also made claims for damages against Winghing, but these claims have not been pursued. 

21.  Towards the end of 2005, the Defendants sought and obtained from Deputy Judge Muttrie an order that Winghing should provide security for their costs on the basis that there was evidence to suggest that Winghing might not be in a position to meet any costs order made against it should it fail in these proceedings.  Winghing failed to provide such security.  As a result the vendors were able to enter judgment against Winghing in respect of Winghing’s claim against them.  However, it was held by the Court of Appeal that Winghing remained entitled to defend the counterclaim brought by the Defendants.  Winghing has not, however, appeared at the trial before me. 

22.  At the trial, Mr Leung, who appeared for the Defendants, called two witnesses to establish the facts which were necessary for the Defendants to succeed on their counterclaim.  These were, as I have indicated, Mr H W Lee and Mr Cheng, both of whom gave evidence substantially in terms of the witness statements that they had made and elaborated on that evidence in oral evidence.  I have no reason to doubt the veracity of their evidence and I accept it. 

23.  In order to determine which of the parties was in breach of the sale and purchase agreement, it is necessary to resolve a number of issues which arise from the pleadings.  The first issue raised by Winghing is an allegation that there was an oral contract to the effect that the sale and purchase of the Property was to be conditional upon completion of the sale and purchase of the three other properties to which I have referred earlier.  As to this, I am quite satisfied that there is no merit in such a contention.  Quite apart from Mr Lee and Mr Cheng’s evidence that there was no such agreement, such an oral agreement would not be enforceable as it does not appear to have been evidenced in writing.  Further, and in any event, clause 18 of the formal agreement of the sale and purchase agreement, to which I have referred, makes it clear that the agreement constitutes the entire agreement between the parties, and expressly excludes any other oral agreement such as that alleged by Winghing.

24.  I am satisfied that no such agreement was made, and even if it had been discussed or agreed upon before the entering into of the sale and purchase agreement, the failure to record it in the sale and purchase agreements meant that it was not part of the agreement ultimately reached between the parties.

25.  Winghing also alleged that there had been breaches by the Defendants of various terms which Winghing contended should be implied into the contract. 

26.  First, Winghing contended that there was an implied term of the contract that the sale and purchase should be completed within a reasonable time, notwithstanding that no fixed date for completion was mentioned.  It is true that in most cases where there is no fixed date for completion mentioned the courts will imply an obligation to complete the transaction within a reasonable time.  However, it does not seem to me that such a term falls to be implied in this case. 

27.  Mr Leung drew my attention to the decision of Fuad J, as he then was, in Wong Hing Cheung v Chan Tim Tsai, an unreported decision dated 5 November 1981, in which the facts were similar to this case in that it was necessary for certain consents and approvals to be obtained before property could be sold.  In that case, the sale and purchase agreement, like this one, reflected the necessity of doing this.  Fuad J held that the plaintiffs in that case could not rely on the principle that completion must take place within a reasonable time in the absence of a fixed date because the parties were well aware that the consent of the District Office was a condition precedent stipulated by law, and had expressly provided for that consent to be obtained under the terms of their agreement.  While Fuad J accepted that remedies might be available if the District Office delayed or refused consent for unacceptable reasons, there was no reason to think that any such matters had occurred in that case. 

28.  It seems to me that, given the background to the matter, from which it is clear that Winghing was well aware of the formalities that needed to be completed before completion could take place, and also the evidence, which I accept, that it were offered the opportunity to include a cut-off date or long-stop date within the agreement so as to protect its position in the event of delays taking place, there is no room for the implication of any term to the effect that completion should take place within a reasonable time.  I therefore do not consider that any such term can be implied in this case and it therefore follows that there can be no question of the defendants being in breach of such a term.

29.  The second implied term alleged by Winghing is that the Defendants were under the duty to act with expedition in relation to the obtaining of consent from the District Office.

30.  The third implied term alleged is that the Defendants should not cause unnecessary delay to completion, even though there was no date set for completion.

31.  At the trial, Mr Leung accepted (in my view rightly) that implied terms of this nature could properly be implied into the contract.  It seems to me that in a situation where there is no set date for completion, but completion is dependant on the obtaining of certain approvals which require action to be taken by the vendors to initiate the process of obtaining approval, it is necessary, in order to give business efficacy to the contract, that the vendors should be under an obligation not to delay unreasonably in setting about obtaining such approvals.  If unnecessary delay is caused by the vendor, this could, of course, be prejudicial to the interests of the purchaser, and it seems to me that in the absence of any obligation to act with reasonable expedition, a purchaser would be hostage to a vendor who for no good reason chose to delay in obtaining the necessary consents.

32.  Although he accepted that such terms could be implied, Mr Leung submitted that on the evidence there was no evidence of any breach of such terms in that the vendors had throughout acted reasonably and with reasonable expedition and had caused no undue or unnecessary delay to the obtaining of approvals of the necessary consent to enable the transaction to be completed.  I am quite satisfied from the evidence that that is right.  It took some nine months from the time when the sale and purchase agreement was entered into, until the time when the applications were lodged.  This included a delay of some four to six weeks caused by the error as to the identity of the managers of the Tso on the first occasion that agreement was obtained from the members of the Tso.  However, looked at overall, in the context of the indications that had been given by Mr H W Lee to Winghing as to the likely length of time that might be required for the whole process to be undertaken, and taking into account also the facts that the members of the Tso were scattered across a number of different countries, and that each of them had to be approached for his agreement to the proposed appointment of new managers and proposed sale of the property (a process complicated, as Mr Lee said, by the fact that a number of members had changed their addresses or contact details, which hindered the process of getting in touch with them), I am unable to see that the length of time that was taken between June 1998 and March 1999, could in any way be said to be an unreasonable period of time. 

33.  In any event, it seems to me that even if there had been any unreasonable delay, it would have been necessary for Winghing to have taken steps to terminate the contact before it reached the hands of the District Office.  This it never did.  Once the matter was in the hands of the District Office, it would be out of the control of the Defendants.  Prior to that, however, there had been no attempt by Winghing to rescind the contract.  Thus, even if (contrary to my view) there had been any unreasonable delay up to 10 March 1999, this was not a point that was taken by Winghing before that date, after which it was too late for it to take the point. 

34.  Thereafter, there was in my view little scope for Winghing to seek to terminate the agreement.  But even if there were, it would have been necessary for Winghing to give the Defendants a reasonable length of time to enable completion to take place.  In this context, given that the matter was in the hands of the District Office, to set a completion period of one month at the beginning of April, a mere three weeks after the application had been lodged, was, in my view, not reasonable. 

35.  That being the case, it seems to me that the completion date set by the purchasers of 30 April 1999, was not one which could be binding on the Defendants.  It follows, therefore, that the Defendants are not in breach of any of their obligations under the sale and purchase agreement and that accordingly they were entitled on 30 October 1999 to call on Winghing to complete the purchase of the Property in accordance with the terms of clause 3 of the sale and purchase agreement. 

36.  As Winghing has failed to complete in accordance with the terms of the agreement, it is Winghing, rather than the Defendants, that is in breach of that agreement and it follows that the Defendants are entitled to the declaratory relief which they seek under their counterclaim.

37.  I shall therefore make the three declarations sought by the Defendants and as they have been successful in this action, I shall also order that the costs of these proceedings, including both the costs of the claim and the counterclaim, are to be paid by the Plaintiff to the Defendants, such costs to be taxed on the party and party basis if not agreed.