JI SHAN INTERNATIONAL INVESTMENT LTD. v. RESOURCES MAIN ENTERPRISES LTD. AND ANOTHER

FACV No. 18 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 18 OF 1998

(ON APPEAL FROM CACV No. 213 OF 1997)

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J U D G M E N T

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Chief Justice Li :

1. I agree with the judgment of Lord Hoffmann NPJ and the order proposed.

Mr Justice Litton PJ :

2. I agree with Lord Hoffmann NPJ's judgment and the order proposed.

Mr Justice Ching PJ :

3. I too agree with the judgment of Lord Hoffmann NPJ and the order proposed.

Mr Justice Bokhary PJ :

4. I concur in Lord Hoffmann NPJ's judgment.

Lord Hoffmann NPJ :

5. The issue in this case is the right of a sub-purchaser to specific performance of a contract of sale against the vendor over the head of an uncooperative intermediate purchaser. The vendor, Douglas Ltd ("Douglas") entered into an agreement dated 1 March 1994 to sell a house in Hong Lok Yuen to Resources Main Enterprises Ltd ("Resources") for $20 million. The deposit was $6 million. Completion was deferred for over two years, until 12 noon on 31 August 1996. Meanwhile the market fell. On 31 March 1996 Resources agreed to sell the house to a sub-purchaser, Ji Shan International Investment Ltd ("Ji Shan") for $15.36 million. Completion was also to be on 31 August 1996, at 11 am.

6. The position of Resources was therefore that if the contracts were completed, it faced a certain loss of $4.64 million. It therefore did its best to ensure that the contracts were not completed. It purported to rescind the sub-contract with Ji Shan on the grounds that the drafts for the purchase money were not tendered until 12.15 pm, 75 minutes late. But this was because Resources had failed to specify the amounts of the drafts until 11.05 am that morning. As against Douglas, which held its deposit, it raised at the last minute and then persisted in a requisition about an alleged illegal wall. On this ground, it refused to complete. At the trial the judge held the objection to have been maintained in bad faith. There is now no dispute that Resources was trying, as Mr Warren Chan SC (who appeared for Douglas) put it, to sabotage the transaction.

7. On 4 September 1996 Ji Shan tried to save the main contract by offering to pay Douglas the balance of the purchase price in return for an assignment to itself. It repeated this offer on 11 September. Douglas's position was that it had no privity of contract with Ji Shan and would not complete unless Resources was a party to the assignment. For this purpose, it granted four successive extensions of the time for completion, the last of which expired on 9 November 1996. While these extensions were running, on 25 September 1996, Ji Shan issued a writ for specific performance, joining both Douglas and Resources as defendants. On 13 November 1996 Douglas's solicitors wrote to the solicitors for Resources, purporting to terminate the contract and forfeit the $6 million deposit. On 27 November 1996 Douglas commenced proceedings against Resources, claiming a declaration that the contract had been terminated and that it was entitled to forfeit the deposit. Resources counterclaimed for repayment of the deposit, saying that the wall was a defect in Douglas's title.

8. Deputy Judge Beeson held that Resources had not been entitled to terminate the sub-sale contract and that Ji Shan was entitled to specific performance against Douglas. The Court of Appeal, by a majority (Nazareth V-P and Liu JA, Rogers JA dissenting) reversed her decision, dismissing the claim to specific performance and holding that Douglas was entitled to forfeit the deposit.

9. One of the grounds upon which the majority of the Court of Appeal held that Ji Shan was not entitled to claim specific performance appears to have been that time had not been made of the essence of the contract. But the question of whether time was of the essence of a contract is relevant only if one party claims to terminate the contract because the other has not performed in time. It has nothing to do with a sub-purchaser's right to specific performance, which arises as soon as the contractual date for completion has passed and depends upon the contract still being on foot and the sub-purchaser having title to sue and being ready and willing to perform the obligations of the purchaser under the contract. (See Shaw v Foster (1872) LR 5 HL 321). Mr Warren Chan disclaimed any submission that a party cannot sue for specific performance unless time has been made of the essence and I therefore say no more about it.

10. The more substantial point is whether Ji Shan was entitled, so to speak, to step into the shoes of Resources to claim specific performance. Mr Warren Chan says it could not do so because those shoes had by no means been vacated. They were still obstructively occupied by Resources, which was asserting a breach of contract by Douglas, claiming repayment of the deposit and generally behaving in a way which could be regarded as a repudiatory breach of contract.

11. It seems to me, however, that on the facts as found by the trial judge, Ji Shan was entitled in principle to enforce the contract, whatever Resources might have to say about the matter. Resources may have committed a repudiatory breach but the repudiation had not been accepted. It was, in Asquith LJ's lapidary allusion, "a thing writ in water" (Howard v Pickford Tool Co Ltd [1951] 1 KB 417, 421). When Ji Shan undertook to complete and when it commenced proceedings for specific performance, the contract was alive and Ji Shan entitled to enforce it. Resources was regarded in equity as having assigned its rights to Ji Shan and could not destroy what it had assigned simply by refusing to co-operate.

12. Mr Warren Chan says that this is all very well in the light of the facts found by the judge on 25 August 1997. But on 4 September 1996, when Ji Shan offered to perform the contract and asked for an assignment, the picture was unclear. Douglas could not dismiss the dispute over the wall as being merely vexatious, although the judge subsequently found this to be the case. Nor could it safely form a view about whether Resources had been entitled to terminate the sub-purchase agreement. If it had been properly terminated, Ji Shan had no claim at all. It would therefore have been very risky on 4 September 1996 to execute an assignment to Ji Shan and then face the possibility of a claim for return of the deposit and legal costs by Resources.

13. I think that there is considerable merit in this submission. Douglas could not have been expected to convey the property to Ji Shan unless it was protected against an adverse claim by Resources. There are various ways in which it might have been protected. For example, it would have been entitled to insist that any assignment be subject to the lien which Resources would have for the return of its deposit if it should be held so entitled. It might have required an indemnity for any further claim by Resources and perhaps that the indemnity be secured on the property. Or it might have said that it was only willing to convey pursuant to an order of the court in proceedings to which Resources had been made a party and by which it would therefore be bound.

14. I do not think it is necessary to examine these hypothetical arrangements any further because the position changed when Ji Shan commenced proceedings for specific performance. Whatever order the court made in those proceedings would be binding upon both Resources and Ji Shan. From that moment, the problem which faced Douglas was not that of being at risk of conflicting claims but simply of delay; of having to wait until the court had resolved the disputes between the parties.

15. It seems to me that if Douglas had been willing to perform the contract, it would probably have been possible to devise an interlocutory order which would have enabled it to receive the purchase money and convey the property to Ji Shan on terms which protected the position of Resources until its claim had been resolved. But Douglas chose instead to defend the action and one should not overlook the possibility that it may have had an interest in retaining the house and $6 million rather than selling it for $20 million. It was also in a position in which even if there had been no sub-purchaser, an immediate resale of the property would have had its complications. Resources was asserting a claim to return of the deposit and the lien for this claim was capable of protection on the register. Either way, therefore, it would have had to await the outcome of the proceedings before regaining full freedom of disposition over the property. So I do not see why it should have been entitled, after the commencement of the proceedings, to purport to destroy what the judge subsequently found to be Ji Shan's legitimate claim to specific performance simply on the ground that it did not want to wait for the outcome of the case. In the absence of some interlocutory order of the kind I have mentioned, it would have had to wait anyway.

16. I therefore think that the Deputy Judge was right and would restore her order, subject to certain amendments which have been made necessary by the passage of time.

Order

17. Accordingly, I would allow the appeal with costs and would make the following order :

1. The appeal is allowed with costs before the Court of Appeal and this Court to the appellant.

2. The Orders of the Court of Appeal in CACV Nos 213 and 214 of 1997 dated 30 March 1998 be set aside.

3. The Judgment dated 25 August 1997 and the Order dated 12 September 1997 of Deputy Judge Beeson be restored with the following modifications :

(a) The date of "30 September 1997" on the last 2 lines of para. 3 of the aforesaid Order be substituted by "the date of completion".

(b) The completion date for specific performance be 5 February 1999 (time being of the essence).

(c) The sum of HK$850,000 in para. 1 of the aforesaid Order be substituted by the sum of HK$1.8 million.

(d) There be an order that on completion, the sum of HK$6 million paid by the 1st respondent to the 2nd respondent as deposit under the agreement between them be applied towards payment of the purchase price on completion by the appellant.

18. The terms of the Order as set above were in fact, agreed by the parties save for the completion date and the sum in paras 3(b) and (c).

Chief Justice Li :

19. Accordingly, the Court allows the appeal and makes the above order.