WAI KAM FAT and Another v. CHEUNG KWOK FUNG, WILSON and Others

IN THE COURT OF APPEAL

1996, No. 37
(Civil)

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J U D G M E N T

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Godfrey, J.A. (giving the judgment of the court at the invitation of Nazareth, V.P.) :

Introduction

1. This is an appeal from a judgment of Seagroatt, J. dated 16 February 1996 in an action which arose out of a provisional agreement for sale and purchase dated 5 April 1991 ("the agreement"). The plaintiffs were the vendors under the agreement and the defendants were the purchasers; I shall so refer to them. The property the subject of the sale was Flat A, 21/F Woodbury Court, Discovery Bay, Hong Kong. The agreed purchase price was $1,190,000 (inclusive of club membership). The agreement was made, or recorded, in writing, on a form produced by a broker called Jean Paul International Property Consultants.

The terms of the agreement

2. The form set out the terms of payment. These were, to summarise, that a deposit of $50,000 should be paid by the purchasers to the vendors upon the signing of the agreement; a further deposit of $69,000 should be paid by the purchasers to the vendors upon the signing of a formal sale and purchase agreement on 23 April 1991; and the remaining sum of $1,071,000 should be paid by the purchasers to the vendors on or before 22 June 1991, when the vendors were to deliver vacant possession of the property to the purchasers. The agreement provided that the vendors should only be obliged to deliver vacant possession on 23 June 1991 if they received from a tenant of the property before 15 April 1991 a notice of surrender of his tenancy. Otherwise, the sale would not go ahead.

3. As I have already indicated, one of the terms of the agreement was that on 23 April 1991 the vendors and the purchasers should enter into a formal agreement for sale and purchase. The solicitors in due course nominated by the vendors as their solicitors were Chan, Wong & Lam (later to be brought into the action as a third party, but with whom we are not on this appeal concerned). The agreement provided that should either party fail to enter into the formal agreement for sale and purchase, the defaulting party would be deemed to be in breach of the agreement.

The issue

4. The purchasers (for reasons which will appear) did not in fact sign any formal sale and purchase agreement on 23 April 1991 and the vendors refused to go ahead with the sale. The issue is whether the vendors were justified in doing so.

The events after 5 April 1991

5. As I have said, the date of the agreement was 5 April 1991. The date by which it was intended that the notice of surrender to which it referred should be obtained was 15 April 1991. In fact it was not so obtained until 22 April 1991. This however was only one day before the date, 23 April 1991, specified for the signing of the formal sale and purchase agreement. In these circumstances, it was not until 26 April 1991, according to the evidence accepted by the judge, that the draft formal sale and purchase agreement was sent by the vendors to the purchasers. On 30 April 1991, the draft formal sale and purchase agreement was returned, with some amendments, to the vendors' solicitors who engrossed it and sent that engrossment, on 1 May 1991, to the purchasers' solicitors. On 2 May 1991, the purchasers' solicitors returned the engrossed formal sale and purchase agreement duly signed by the purchasers together with a cheque for $69,000. This cheque bounced; in its place the purchasers tendered cash (on 4 May 1991), which was accepted by the vendors' solicitors. On 14 May 1991, the vendors purported to sell the property elsewhere, at a higher price; and, on 18 May 1991, they informed the purchasers that they were calling off the sale to the purchasers. The vendors' excuse was that they were entitled to refuse to go ahead with the sale to the purchasers because the purchasers had not signed the formal sale and purchase agreement on 23 April 1991, and the $69,000 had not on that date been received and released to them. This was rejected by the judge. The judge, although he found that, time was not of the essence of the agreement, held that, in the circumstances which we have outlined, it was the vendors who were in breach of the agreement. He therefore declined to grant the vendors the relief which they had sought, essentially, forfeiture of the purchasers' initial deposit. Instead, he made a decree of specific performance in favour of the purchasers on their counterclaim.

The appeal

6. The vendors now appeal (although, improperly, only one of them is named as the appellant). They contend that the judge erred in finding that time was not of the essence of the agreement.

7. We would uphold this ground of appeal. In these provisional agreements for sale and purchase in today's secondary market in Hong Kong, everybody does, usually, proceed on the footing that time is to be of the essence, and that a purchaser who refuses or fails to sign the agreement, if it is available for signature on the specified date, and there is no blame to be attributed to the vendor, will be held to be in repudiatory breach of the agreement. This has not always been appreciated by judges of first instance, see, for example, the decision of Rhind, J. in DH Shuttlecocks Ltd. v. Keung Shiu Tang [1993] 2 HKC 600 and the decision of Keith, J. in Wong Shiu Hung v. Kwok Sing Leung [1992] 2 HKC 369 (but cp. the decision of Cheung, J. in Choi Soik Pin v. Lui Bing Bing Betty [1993] 1 HKC 446 esp. at p.453B). And there is a decision of this court which may have overlooked the point : see Yiu Yau Ping v. Fong Yee Lan [1992] 2 HKLR 167. Of course, each case must depend on its own facts. But in the absence of special circumstances, it will usually be the case that a provisional agreement for sale and purchase in the common form in use in Hong Kong will be treated as one of which time is of the essence, although no express provision in that behalf is contained in the agreement (for helpful dicta to that effect in this court see: Man Sun Finance International Ltd v. Lee Ming Ching, Stephen [1993] 1 HKC 113 per Litton, J.A. at p.120B-D; Lee Kenny v. Wong Kwok Yan [1994-95] CPR 356, per McDougall, V.P. at p.363; and Health Link Investment Ltd v. Pacific House Investment Ltd [1994-95] CPR 399, per Liu, J.A. at p.408). However, here time ceased to be of the essence when the vendors' solicitors failed to come up with the agreement for signature by the purchasers on the specified date, 23 April 1991. Thereafter, no complaint can legitimately be made about the purchasers' conduct. (The fact that the cheque for $69,000, which they tendered, was not met was waived by the subsequent acceptance, by the vendors' solicitors, of cash instead.) There is no reason to doubt any of the findings of fact made by the judge. He accepted the purchasers' evidence in preference to that tendered on behalf of the vendors. Although we are with the vendors on this first point concerning time being of the essence of the agreement, the judge thereafter seems to us to have reached conclusions which cannot possibly be impeached. Accordingly, like the judge, we are satisfied that it was the vendors, not the purchasers, who repudiated the agreement. The action was therefore bound to fail and the counterclaim bound to succeed. This appeal has to be dismissed, with costs.