FAN KAI MING v. LAM SUSAN SHUI HING

DCCJ 2037/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2037 OF 2015

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JUDGMENT

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INTRODUCTION

1.  This is a two-day trial of the plaintiff’s claim for specific performance of a provisional sale and purchase agreement of a piece of land situated at Yuen Long or alternatively damages in lieu as a result of the defendant’s alleged breach of such agreement.

2.  As perceived by this court, the crux of the dispute turns on the construction of a cancellation agreement subsequently entered into between the parties to cancel the sale and purchase transaction and the construction of the provisional agreement.

3.  It is the special feature of this trial that the background facts are relatively straight forward, and the relevant testimonies given by the plaintiff, the defendant, and the defendant’s two other witnesses (viz Mr. Man Ka Wai (“Mr. Man”) and Ms. Ng Ka Yin (“Ms. Ng”)) are largely undisputed.  The relevant undisputed facts and evidence are set out below.

THE BACKGROUND FACTS AND UNDISPUTED EVIDENCE

4.  On 16 October 2014, the plaintiff (being the purchaser) and the defendant (being the vendor) entered into a provisional sale and purchase agreement of land, viz the Remaining Lot No 111 in Demarcation District No 105, Yuen Long, New Territories, Hong Kong (“the subject land”) at the consideration of HK$1 million (“the Provisional Agreement”) through a middleman, i.e. Mr. Man.  He was responsible for assisting the plaintiff and the defendant in the negotiation of the purchase price, and drafting the Provisional Agreement basing on a home-made template which he had borrowed from his friend.

5.  Under the Provisional Agreement, the purchaser shall pay a deposit of HK$300,000 (“the Deposit”) to the vendor. The completion date is stipulated as 1 December 2014.  There are two escape clauses allowing the respective parties to back out of the transaction: should the purchaser cancel the agreement, the Deposit shall be forfeited by the vendor. On the other hand, if the vendor cancels the agreement, the Deposit shall be refunded to the purchaser with an additional payment equal to the amount of the Deposit as agreed compensation.

6.  The Provisional Agreement did not provide for signing of any formal sale and purchase agreement, or provision of any further deposit.  The defendant received the Deposit from the plaintiff on the same day of signing of the Provisional Agreement.

7.  The parties subsequently engaged the same law firm, Messrs Leung Kin & Co (“the law firm”), ie the plaintiff’s present solicitors, to act for both of them in the intended conveyance of the subject land.  Ms. Ng was the handling conveyancing clerk.

8.  Before the arrival of the completion date, the defendant had informed the law firm that she decided not to proceed with the intended conveyance and would return the Deposit to the plaintiff and further pay HK$300,000 to the plaintiff as agreed compensation pursuant to the Provisional Agreement.

9.  Ms Ng then phoned the plaintiff by telling him the defendant’s decision, and that she would return the Deposit and pay him an additional sum of $300,000 pursuant to the Provisional Agreement. 

10.  On 28 November 2014, the defendant attended the office of the law firm to execute the Cancellation Agreement as prepared by the law firm (“the Cancellation Agreement”).  She also handed over to Ms Ng a cheque of HK$600,000 drawn in the plaintiff’s favour on the same occasion (“the Cheque”) together another cheque of HK$1,000 being her share of legal costs charged by the law firm in the preparation of the Cancellation Agreement.  Ms Ng gave evidence that the plaintiff paid for his share to such legal costs as well.

11.  On 29 November 2014, Ms Ng through Mr. Man informed the plaintiff that the defendant had already signed the Cancellation Agreement and provided them with the Cheque, and asked the plaintiff to attend their firm to sign the Cancellation Agreement as soon as possible. 

12.  On 1 December 2014, the plaintiff attended the law firm’s office and signed the Cancellation Agreement accordingly. The law firm helped the plaintiff to bank in the Cheque on the same day.

13.  It is undisputed that owing to the defendant’s oversight, there was a mere shortage of fund of HK$923.60 in her bank account, and the Cheque was bounced as a result.

14.  On 2 December 2014, the defendant received notification from her bank manager of the dishonoured cheque.  She immediately put her bank account with sufficient fund on the same day.

15.  On 3 December 2014, the defendant instructed her former solicitors, Messrs Cheung & Yip, to write to Messrs Leung Kin & Co, notifying the plaintiff that her bank account was of sufficient fund and requesting the plaintiff to bank in the Cheque again.[1]  On 4 December 2014, Messrs. Leung Kin & Co. wrote back saying that the plaintiff would not re-present the Cheque.[2]

16.  Further, on 22 April 2015, Messrs Cheung & Yip tendered a cashier order of HK$600,000 to the plaintiff’s solicitor indicating also that the defendant undertook to bear such reasonable loss of the plaintiff due to his late receipt of the sum up to 2 December 2014.[3] The plaintiff’s solicitors returned the cashier order to Messrs Cheung & Yip and claimed that the Provisional Agreement was still binding and the plaintiff intended to enforce specific performance of the agreement.  This then eventually brought about the present litigation.[4]

17.  After the commencement of this action and before serving her Defence, the defendant on 28 May 2015 paid a sum of HK$600,131.50 into the court as statutory defence of tender in purported satisfaction of the plaintiff’s claim pursuant to section 30 of Law Amendment and Reform (Consolidation) Ordinance (Cap23).

THE PARTIES’ CONTENTIONS

18.  In essence, Mr Thomas Lai representing the plaintiff contends that time was of the essence of the Cancellation Agreement, and the failure by the plaintiff to pay the sum of HK$600,000 on 1 December 2014 amounts to its repudiation.  With the Cancellation Agreement gone, the Provisional Agreement remains valid and binding, and the plaintiff is therefore entitled to seek specific performance of the Provisional Agreement or otherwise claim damages in lieu of specific performance in the sum of HK$1,300,000[5] (“the damages in lieu”) because the defendant failed to complete the transaction with him under the Provisional Agreement.

19.  Whereas, Mr Tong Chow representing the plaintiff contends that the Cancellation Agreement contains no contractual provision stipulating time is of the essence of such agreement.  Neither can such term be implied.  All the rights and obligation of the parties under the original contract have already been extinguished and discharged by virtue of the Cancellation Agreement.  His alternative defence is that even if the Cancellation Agreement cannot take effect due to the dishonour of the cheque, and the Provisional Agreement still subsists (which is denied by the defendant), the plaintiff can still rely on the escape clause under the Provisional Agreement to back out of the transaction by refunding the Deposit and paying in addition the agreed compensation of HK$300,000 provided therein to the plaintiff.  All along, she has been prepared to pay the full amount of HK$600,000 to the plaintiff coupled with the reasonable loss which the plaintiff may suffer due to his late receipt of payment.   

ISSUES IN DISPUTE

20.  The parties have agreed to a list of issues, which are in my view revolving around the following two main issues:-

(1)  Whether the dishonour of the Cheque would entitle the plaintiff to treat the Cancellation Agreement as repudiated by the defendant? (“Issue 1”)

(2)  If yes, what is the resultant position of such repudiation?  In particular, whether the plaintiff can revert back to the Provisional Agreement to seek its specific performance or otherwise claim the damages in lieu? (“Issue 2”)

21.  As pointed out at the outset, the resolution of the dispute between the parties in this case is largely a matter of construction of contract in respect of the Cancellation Agreement and the Provisional Agreement.

ISSUE 1

Relevant clauses of the Cancellation Agreement

22.  The Cancellation Agreement is a short document consisting only of two pages for the recital and the operative part.

23.  The recital recited the facts of the earlier transaction as entered into between the parties under the Provisional Agreement, and they now agreed to cancel the same.

24.  There are just four paragraphs in the operative part.  It is apt to fully set them out below –

“1.  The said Agreement is hereby cancelled and shall have no further effect whatsoever.

2.  The Vendor shall on the signing of this Agreement pay to the Purchaser the sum of HK$600,000 as to HK$300,000 being refund of deposit and as to HK$300,000 being compensation payable by the Vendor to the Purchaser (receipt whereof is acknowledged).

3.  Each of the parties hereto shall release the other party of them from the obligation of the terms and conditions of the said Agreement for Sale and Purchase and shall have no claim against each other.

4.  Each party shall bear his own solicitors costs of and incidental to the preparation completion of this Agreement.” (emphasis supplied)

25.  Clauses 1, 2 and 3 of the Cancellation Agreement as quoted in the preceding paragraph are hereinafter referred to as “clause 1”, “clause 2”, and “clause 3” respectively throughout for ease of discussion.

Construction of the Cancellation Agreement

26.  First of all, the meaning of clause 1 is clear that the Provisional Agreement was cancelled once the Cancellation Agreement was entered into given the phrase of ‘is hereby cancelled’ and the parties also made it plain that the Provisional Agreement shall have no further effect whatsoever.  It is also noteworthy that neither clause 1 nor elsewhere in the Cancellation Agreement contains any reservation provision that the Provisional Agreement can somehow be revived upon the happening of any event.

27.  Viewing from its objective factual background, the evident purpose of entering into the Cancellation Agreement was to put an end to the Provisional Agreement before the completion scheduled to take place on 1 December 2014.  Legally speaking, according to clause 3, upon the entering into the Cancellation Agreement, not only the defendant would have no obligation whatsoever to further perform the original contract, the plaintiff would equally be under no obligation to tender the balance of purchase price of $700,000 to the defendant on 1 December 2014 to complete the transaction.

28.  It is therefore plain to this court that by virtue of clauses 1 and 3, the Provisional Agreement already came to an end and could not be revived once the Cancellation Agreement was entered into.  Their core purpose is to extinguish and discharge the rights and obligations of each party under the original contract absolutely.

Relevant principles on the construction of the Cancellation Agreement

29.  Chitty of Contracts (32^nd ed), vo1 1, para 22-015 provides that:-

“In the modern law, therefore, a claimant may still insist upon the performance of some act by the other party in satisfaction of his claim. In that case, there is no satisfaction until performance, and the other party remains liable on the original claim until the satisfaction is executed. More often, however, the claimant will agree to accept the other party’s promise of performance in satisfaction of his claim. The original claim is then discharged from the date of the agreement and cannot be revived. The claimant’s sole remedy, in the event that the other party fails to perform, is by action for breach of the substituted agreement, and he has no right of resort to the original claim. If he wishes to preserve his right to proceed with the original claim should the other party fails to perform, an express term should be incorporated in the agreement to that effect.” (emphasis supplied)

30.  Without the need of going into the legal debate whether a compromise agreement presupposes a pre-existing dispute between the parties to be qualified as such[6], the contractual mechanism provided under the Cancellation Agreement is for all practical purposes akin to a compromise agreement providing a full settlement in respect of the original subject matter between the parties.  In this respect, the authorities on the construction of compromise agreement are equally applicable to the contractual context of the present case.

31.  In Lam Fung Ying v Ho Tung Sing [1993] 2 HKC 436, Deputy High Court Judge Ronny Tong QC at p.447E-F and pp.477I-448B summarised the legal position of the English authorities concerning settlement of a cause of action as follows:-

“The position in law in the case of a settlement of a cause of action is thus: if the settlement is reached in return for a promise to pay or to do an act, there is an accord and satisfaction. The effect of this is that as soon as agreement is reached, the original cause of action is discharged and the plaintiff can no longer pursue his original cause of action. Since the lis is extinguished or gone, the court will no longer have jurisdiction over the matter and there is nothing the parties can do to revive either the original cause of action or the jurisdiction of the court. The only remedy open to the plaintiff is to sue for damages in respect of breach of the settlement agreement.

...

On the other hand, if the settlement is reached in return for the performance of an act or, conditional or dependent upon the doing of an act then, there is merely an accord executory. If and when the promised act is performed, the plaintiff is contractually bound to accept it and once accepted, there is accord and satisfaction, and the original cause of action is discharged or extinguished. But unless and until the promised act is performed, the original cause of action is merely suspended so that if the defendant does not perform his part of the bargain then, the plaintiff has a choice to either pursue the original cause of action or to sue on the settlement agreement.” (emphasis supplied)

32.  Lam Fung Ying was cited by Mr Chow as one of his supporting authorities and Mr Lai had no quarrel that the principles enunciated therein are applicable to the construction of the Cancellation Agreement here.  In fact, Mr Lai also referred me to an English authority of British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 (CA) in advancing his argument and this case was among one of the English authorities reviewed by the Learned Deputy Judge in Lam Fung Ying before His Lordship summarised the legal position about the construction of a compromise agreement on settlement of a cause of action as mentioned in paragraph 31 above.

Application of the principles

33.  As I see it, upon the reasonable construction of the Cancellation Agreement as a whole, clause 3 in the present contractual context would mean that the defendant promised to release the plaintiff’s obligation under the original contract in exchange for the plaintiff’s promise to release hers, and vice versa.  

34.  By the defendant so giving her promise, it also constituted a valid consideration for making the plaintiff’s promise a binding one, and vice versa.  Moreover, each party’s promise to release the other from his or her obligations under the Provisional Agreement can be performed and was performed at the time of entering into the Cancellation Agreement. 

35.  Viewing thus, irrespective of whether one interprets the plaintiff’s agreement to put an end to the Provisional Agreement is made in return for the defendant’s promise to release the former’s obligations under the original contract, or in return for the performance of such a promise made by the defendant, it does not matter.  For, there would be accord and satisfaction in both cases at the time of the entering of the Cancellation Agreement. (see paragraph 31)

36.  Mr Lai submits that clause 2 when read together with clauses 1 and 3 would yield the effect that the cancellation of the original contract is conditional or dependent upon the payment of $600,000 by the plaintiff on the signing of the Agreement.  If the plaintiff failed to pay accordingly, the original contract still subsists or can otherwise be revived. (see Lam Fung Ying (supra), at p447I-448B, ie the second passage as extracted from that case referred to in paragraph 31 above)

37.  With respect, I do not accept such submission.  The agreement does not expressly provide for such an effect or consequence as Mr Lai contends.  Neither would the reasonable construction of the clauses 1, 2 and 3 collectively give rise to such contractual meaning. 

38.  It is trite that the court has no power to rewrite a contract which it is called upon to construe.  Nothing can be inserted into a contract for either party which the objective meaning of the contractual clauses clearly cannot convey.

39.  In my view, clause 1 can work perfectly well with clause 3 without the performance of clause 2 in light of my aforesaid observation.  In other words, the performance of the defendant’s payment obligation under Clause 2 does not serve as a pre-condition for the plaintiff releasing the defendant from her obligations under the Provisional Agreement.  If the parties are minded to make the operation of clause 1 and clause 3 ‘dependent upon’ or ‘subject to’ the performance of the defendant’s payment obligation under clause 2.  It could have been very easy for the parties to expressly provide so in the contract bearing particularly in mind that the Cancellation Agreement was prepared by the same lawyer acting for both of them, but no such contractual provision was made. 

40.  Moreover, the asserted implicit meaning that the carrying into effect of clause 1 and clause 3 is dependent upon the performance of the payment obligation under clause 2 would be in defiance of the clear and unambiguous language used in clause 1 that the Cancellation Agreement is hereby cancelled, and shall have no further effect whatsoever as pointed out above.

41.  Certainly, the failure to perform the payment obligation under clause 2 by the defendant on time would not leave the plaintiff without any redress.  But his remedy would be basing on the breach of the Cancellation Agreement by suing for any damages arising out of such breach, but not on the repudiation of the Cancellation Agreement in any event.  This is because the essential bargain as provided under clause 3 has already been fully performed by both parties upon the entering into the Cancellation Agreement. This issue of breach would also be further canvassed at appropriate junctures below[7].

42.  In light of the aforesaid, upon the construction of the Cancellation Agreement as a whole, this court take the view that the parties’ agreement to put an end to the Provisional Agreement is reached in return for the defendant’s promise to pay the HK$600,000 under clause 2 and both parties’ performance of clause 3 at the time of the entering into the Cancellation Agreement.  In other words, there is accord and satisfaction with respect to both clause 2 and clause 3 at the time of entering into the Cancellation Agreement.

Whether any implied term of “time of the essence” for the defendant’s payment obligation under clause 2?

43.  Can the plaintiff salvage his case by arguing that there is an implied term in the Cancellation Agreement that the time for performing the defendant’s payment obligation under clause 2 is of the essence? 

44.  Having a clear insight into the purpose of the Cancellation Agreement and the construction of its key provisions as discussed above, one would readily see that such implied term argument is misconceived.  However, since both parties’ counsel also made substantial submission on this point at the hearing, it is fair for this court to speak a bit more about its view on this matter.

45.  It is not in dispute that the Cancellation Agreement contains no such express contractual requirement.  Mr Lai submits that such term can nonetheless be implied.  According to Mr Lai, the purpose of implying such term is to elevate the plaintiff’s payment obligation under clause 2 to a ‘condition’, the breach of which can allow the plaintiff to treat the Cancellation Agreement as repudiated by the defendant.  (see Chitty on Contracts (32^nd ed), para 21-015)  This would then allow the plaintiff to revert back to the Provisional Agreement to seek its specific performance or to claim the damages in lieu.

Relevant principles on implied term

46.  Generally speaking, the term to be implied must be necessary to give business efficacy to the contract, and no term will be implied when the contract is effective without it. (see Kensland Realty Ltd v Whale View Investment Ltd & Anor [2001] 4 HKCFAR 381, per Bokhary PJ at para 59; see also Tadjudin Sunny v Bank of America, National Association (CACV 12 of 2015, 20 May 2016), paras 38-41)

47.  With specific reference to whether time for performance of a contractual term is made ‘implicitly’ of the essence, the co-editors of Chitty on Contracts (32^nd ed), at para 21-013 are of the view that:-

“Time made expressly or implicitly ‘‘of the essence’’. Time is of the essence: (1) Where the parties have expressly stipulated in their contract that the time fixed for performance must be exactly complied with, or that time is to be ‘‘of the essence’’. (2) Where the circumstances of the contract or the nature of the subject-matter indicate that the fixed date must be exactly complied with, ... Whether a time limit is of the essence of a contractual provision is a question of interpretation of the provision in the context of the contract as a whole. The question is whether the time specified in the particular clause was (expressly or by necessary implication) intended by the parties to be essential, e.g. because they needed to know precisely what were their respective obligations. ...”

Application of the principles

48.  By looking at the nature of the Cancellation Agreement, its key purpose is to let the parties acquire certainty and a settled position that the original sale and purchase transaction has come to an end.

49.  I now turn to the background circumstances of the entering of contract.  Although the defendant signed the Cancellation Agreement and handed over the Cheque to Ms Ng on 28 November 2014, the plaintiff signed it on 1 December 2014.  The Cancellation Agreement should therefore be entered into between the parties on 1 December 2014.  As such, the agreed date on which the defendant has promised to pay the HK$600,000 under clause 2 would effectively be 1 December 2014.

50.  Before the plaintiff signed the Cancellation Agreement, he knew or ought to know that the Cheque (which is a HSBC cheque) was marked ‘account payee only’[8]. It was subsequently deposited into his Hang Seng Bank account.  It would be within the parties’ reasonable contemplation at the time that the Cheque cannot be cashed on the same day of entering into the agreement, viz 1 December 2014. Viewing thus, the time for the plaintiff to receive the payment of HK$600,00 on exactly 1 December 2014 is unlikely to be a matter of importance to him.  

51.  Under clause 2, the plaintiff also expressly acknowledged receipt of HK$600,000 by virtue of the phrase ‘(receipt whereof is acknowledged)’ being inserted at the end of that clause.  In addition, there is a corresponding acknowledgement of receipt of payment clause at the signing page[9]. This court has no intention to delve into any potential argument whether the plaintiff would be estopped by these contractual features from denying his receipt of HK$600,000 as specified under clause 2 so that the subsequent dishonour of the Cheque would only confine his remedy to that basing on the dishonoured cheque only rather than allowing him to sue for breach of contract as well.  Mr Chow has not advanced any argument in this respect and this court would say no more on this potential argument.

52.  However, the significance of the aforesaid contractual features lies elsewhere.  They tend to serve as another indicia against implying the ‘time of the essence’ term into clause 2.  At the time of receiving the Cheque from the defendant, the plaintiff ought to know that the Cheque may or may be honoured upon presentation.  Therefore, speaking purely from the perspective of construction of contract, if the defendant’s payment of HK$600,000 on 1 December 2014 is so essential to the plaintiff that the subsequent dishonour of the Cheque cannot be made good by payment on any later day, the aforesaid ‘acknowledgment of receipt’ phrase and clause would unlikely have been inserted into the contract in the first place. 

53.  It is also worthy to note that the ‘acknowledgment of receipt’ clause at the signing page stated that the HK$600,000, as opposed to the Cheque for that sum, is received by the plaintiff.  The plaintiff has never asserted that the ‘acknowledgment of receipt phrase at clause 2 or the acknowledgment of receipt clause at the signing page are wrongly stated in the Cancellation Agreement by mistake of any kind, let alone any relief for rectification of this matter is sought for by the plaintiff.

54.  Apart from the aforesaid, the completion date is only stipulated as 1 December 2014 without mentioning the specific hour of that date before which the transaction has to be completed. Prima facie, the midnight rule should apply, viz, it has to be completed before midnight of 1 December 2014. (see Camberra Investment Ltd v Chan Wai Tak [1989] 1 HKLR 568 (CA))

55.  However, according to the normal banking practice, the earliest day the plaintiff can be sure that the Cheque is cashed is the following banking day, ie 2 December 2014.  By then, the completion date had been passed, and the parties would no longer be able to complete the transaction on 1 December 2014 as per the Provisional Agreement. 

56.  Therefore, purely for the sake of argument, if the alleged term of time of the essence is to be implied and the dishonour of the Cheque would entitle the plaintiff to repudiate the Provisional Agreement, there would also need to be implied a term that the completion date of 1 December 2014 originally provided under the Provisional Agreement in such a circumstance would be extended.  But the question would naturally arise: to be extended for how long?  If extended for a reasonable time, how long after 1 December 2014 is reasonable in the circumstances?  All these matters would in the context of the present case create a chain of uncertainties that would apparently work against the aforesaid objective of the parties in entering into the Cancellation Agreement to put an end to the Provisional Agreement without any reservation.

57.  Furthermore, generally speaking, the term to be implied into a contract must not contradict any express term of the contract (see Kensland Realty Ltd (supra), para59).  Yet, if the alleged ‘time of the essence’ term is to be implied, this would mean the plaintiff can upon the dishonour of the Cheque choose to reopen the original transaction, and this would prima facie be contradictory to the clearest wordings and effect of clauses 1 and 3.  At the other side of the coin, the full performance of the bargain under 1 and 3 by the parties in not going ahead to complete the transaction on 1 December 2014 should also in the circumstances prevent the rescission of the contract by repudiation as the plaintiff contends. 

Any relevance of the “time of the essence” clause in the Provisional Agreement?

58.  MrLai tried to further argue that there is an express clause in the original contract providing for time to be of the essence.  And the Cancellation Agreement is not independent and unrelated to the prior transaction.  Rather, the Cancellation Agreement owed its life and origin to the escape clauses provided in Provisional Agreement, and was accordingly vested with all the essential legal attributes of the original contract including its time of the essence term.  

59.  The original provisions of the Provisional Agreement (in Chinese) are set out below for ease of discussion:-

“賣方同意根據本協議條款售賣土地地段DD105 LOT 111 rp地段業權，而買方亦同意根據本協議條款購買該土地。

買價港幣1,000,000元正 (壹佰萬元正)

買方向賣方支付訂金港幣300,000元正。(Deposit of [Three hundred] thousand dollars only)

買方要在2014年12月1日或常日前完成交易向賣方支付買價的餘款。

如買方撤銷本協議，已付的首期訂金則由賣方沒收。

如賣方撤銷本協議，則須向買方退還訂金及向買方支付相等金額作為補償。[10]

本協議有關時間的規定，必須嚴格遵守。

賣方確認收訖買方港幣300,000元正。”[11] (emphasis supplied)

60.  With respect, I cannot accept MrLai’s argument.  First and foremost, as a matter of logic, the mere fact of the Cancellation Agreement entered into to cancel the prior transaction does not necessarily imply that it would be vested with the attributes of the original contract.  Neither is such a broad proposition supported by any of the authorities produced by MrLai.

61.  Second, Mr Chow is right in pointing out the two escapes clauses contained in the Provisional Agreement do not require the parties to enter into a separate cancellation agreement to invoke their operation.  Likewise, nowhere in the Cancellation Agreement made any reference to the two escape clauses, let alone that the contractual mechanism under the Cancellation Agreement needs to or would operate pursuant to any of the escape clauses.

62.  On the other hand, this court is mindful of the Cancellation Agreement coming into place due to the plaintiff’s decision to cancel the original transaction.  Nonetheless, the Cancellation Agreement was prepared by the law firm acting for both parties in the intended conveyance. It is common ground between the parties that neither of them was involved in the negotiation or drafting of the terms as contained in the Cancellation Agreement.  Prima facie, it was the lawyer who suggested a mutual release clause (as per clause 3) be incorporated in the Cancellation Agreement to achieve a clean break between the parties with respect to all of their original obligations under Provisional Agreement provided that the defendant also made a promise to pay the HK$600,000 to the plaintiff under clause 2.  This is not dissimilar to the purpose of the ‘general release clause’ in a compromise agreement as observed by Lord Bingham of Cornhill in Bank of Credit and Commercial International SA v Ali [2002] 1 AC 251 at para 8:-

“...... The release by one party of another from liability arising from whatever state of affairs brought them into dispute is, of course, very essence of compromise. Usually parties will wish to see a resolution that wipe the slate clean and indeed that prevent further matters of disputation being added to the plate. Many formulae have been devised to secure this objective, some fairly short, some more extensive. Any such formula may be characterised as a ‘general release’......”

63.  In these circumstances, the parties had apparently accepted to take the course of entering into the Cancellation Agreement (as advised and prepared by their lawyer) providing its own self-contained contractual mechanism enabling each of them to back out of the transaction clean break and meeting their respective needs at the same time, rather than resorting to the original escape clause as provided in the Provisional Agreement to cancel the same.    It is also noteworthy that each party had separately incurred extra costs to pay their lawyer for the latter’s preparation of the Cancellation Agreement. (see paragraphs 10 and 23 above)

64.  In light of the aforesaid, so long as the ordinary meaning of clause 3 makes sense in relation to the rest of the Cancellation Agreement and the factual background, I think this court should give effect to the language of such clause.

65.  In Sinoearn International Ltd v Hyundai-CCECC Joint Venture(2013) 16 HKCFAR 632, Tang PJ at paras76-78 said -

“76. With respect, the Chief Judge also correctly pointed out that in determining the meaning of the language of a commercial contract, the law generally favours a commercially sensible construction, Lord Clarke said:-

...... If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

77. But it is essential not to lose sight of the fact that:-

...... the Court’s task is to determine “what a reasonable person would have understood the parties to have meant by using the language which they did.”

And that

...... If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other ......

78. As well as Neuberger LJ’s important reminder that:-

[21] ...... the surrounding circumstances and commercial common sense do not represent a licence to the court to re-write a contract merely because its terms seem somewhat unexpected, a little unreasonable, or not commercially very wise. The contract will contain the words the parties have chosen to use in order to identify their contractual rights and obligations. At least between them, they have control over the words they use and what they agree, and in that respect the words of the written contract are different from the surrounding circumstances or commercial common sense which the parties cannot control, at least to the same extent.” (emphasis supplied)

See also, Jumbo King Ltd v Faithful Properties Ltd(1999) 2 HKCFAR 279, per Lord Hofffmann NPJ at p296G-I.

66.  In the course of his closing submission, Mr Lai raised a new legal point that there is no extra consideration provided by the defendant under clauses 2 and 3 in exchange for the plaintiff’s promise to release her obligation to perform the Provisional Agreement because the defendant already had the existing duty under the escape clause to pay for HK$600,000 to the plaintiff under the Provisional Agreement.

67.  With respect, this argument is equally misconceived and should be rejected.  This court has already explained why there is indeed valid consideration provided by the defendant under the new contractual mechanism of the Cancellation Agreement which can work independently of the old escape clauses. (see, in particular, paragraphs 27, 33, 34, 42, 61-63 above)  That aside, in terms of pleadings, it is also impermissible for the plaintiff to raise such legal point in the circumstances of this case as contrary to his own pleaded case under paragraph 9 of the Amended Statement of Claim which presupposed an effectively formed Cancellation Agreement.  And according to that paragraph, only by virtue of the dishonour of the Cheque, then the defendant repudiated the Cancellation Agreement or its consideration wholly failed.

68.  Turning to the authorities on implied term cited by Mr Lai, it is unnecessary for this court to deal with them one by one.  It suffices to point out that they are totally distinguishable from the present case.  The essential proposition to be elicited from the bulk of MrLai’s authorities is that: time would normally be treated as of the essence of a provisional sale and purchase agreement of real property (in the common form in use in Hong Kong) even though it contains no express provision to that effect. (see: Wong Wai Chi Ann & Anor v Cheung Kwok Fung Wilson & Ors [1996] 3 HKC 287, per Godfrey JA at p290F-H; Kwan Siu Man v Yaacov Ozer(1997-98) 1 HKCFAR 343, per Litton PJ at p 355C-E; Howarth Cheung Natalie v Tsang Hong Kwang (CACV 272 of 2014, 15 October 2014), per Cheung JA at paras4.1 – 4.4)[12].

69.  However, we are here not dealing with the enforcement of any term of the provisional sale and purchase agreement of land.  Rather, it is the direct opposite.  What this court needs to construe is essentially the intent and effect of the Cancellation Agreement, which is not working towards the timely completion of the sale and purchase transaction of the subject land, but rather in the reverse to make sure each party’s obligations under the original contract are released absolutely, including the obligation to complete as specified in the original contract.

70.  Mr Lai also relied on the case of Kin Wah JF Construction & Engineering Co Ltd v L&M Foundation Specialist Ltd (CACV 28 of 2005, 22 July 2005), where the Court of Appeal endorsed the trial judge’s finding and held that time was of the essence in respect of the defendant’s obligation under a settlement agreement to pay an agreed sum to the plaintiff within 10 working days, failing which, the settlement had come to an end, and the plaintiff was not bound by it.  The Court of Appeal appeared to have placed significant weight to the evidence given by the defendant’s witness under cross-examination that the plaintiff was short of cash at the time and therefore required the payment to be made within 10 working days. In that case, the Court of Appeal considered that the irresistible inference should therefore be drawn that time of the settlement payment was made of the essence by the parties and so understood by the parties.[13]

71.  However, there is not an iota of evidence of such kind in this case.  The plaintiff here has not given any evidence showing that at or before the entering into the Cancellation Agreement, he would consider it important that the defendant must pay on 1 December 2014 but not any other later day if the Cheque could not be cashed upon presentation.   The evidential analysis at paragraphs 50-53 above is pointing to the contrary.

72.  In light of the foregoing, this court is of the view that it is not necessary for business efficacy to imply the alleged ‘time of the essence’ term into the Cancellation Agreement as contended for by the plaintiff. Or putting it in another way, such alleged implied term would also clearly work against the parties’ reasonable expectation in such sense as expounded by the Court of Appeal in Tadjudin Sunny (supra).[14]

73.  Also, against the factual and legal background of this case, upon the reasonable construction of the Cancellation Agreement as a whole giving due regard of the terms of the Provisional Agreement, this court also find that it is the parties’ intention at the time that the subsequent dishonour of the Cheque would only constitute a mere breach of the Cancellation Agreement which would not entitle the plaintiff to treat it as repudiated by the defendant, but only entitle the plaintiff to recover damages from the defendant, namely, the HK$600,000 together with any loss of interest which he may suffer as a result of the delay in receiving the said sum from the defendant.  For avoidance of doubts, this court also reject any contention of the plaintiff that the dishonour of the Cheque would make the consideration of the Cancellation Agreement wholly fail in light of the aforesaid analysis.

74.  I also find that under the circumstances of this case, the plaintiff should have re-presented the Cheque on 3 December 2014 in order to mitigate his loss.   There was sufficient fund in the defendant’s HSBC account by then for the cashing of the Cheque had it been re-presented[15]. Under the circumstances of this case, the defendant should not be responsible for any loss of interest which the plaintiff may suffer beyond 3 December 2014.

75.  In these circumstances, I find all the rights and obligations of the parties under the Provisional Agreement were fully extinguished and discharged upon the entering into the Cancellation Agreement.  As such, the parties’ position cannot be reverted back to the original Provisional Agreement.  In other words, there is neither factual nor legal base for the plaintiff to claim for any relief of specific performance or the damages in lieu in respect of the Provisional Agreement.

76.  As pointed out in paragraph 17 above, the plaintiff had paid a sum of HK$600,131.50 paid into the court on 28 May 2015 as statutory defence of tender in purported satisfaction of the plaintiff’s claim.  

77.  However, no claim for such damages as mentioned in paragraph 73 above was pleaded in the Amended Statement of Claim.  Had the plaintiff claimed for such damages, this court is of the view that such claim would have been satisfied by the aforesaid statutory defence of tender.  It is also notable that there is no evidence adduced by the plaintiff to prove any loss of interest and no submission made on his behalf on such loss at the hearing.  In other words, the plaintiff has not proved to this court’s satisfaction of his actual interest loss (if any).

78.  Mr Lai also fairly clarified and confirmed with this court in the course of the trial that the damages for breach of contract as pleaded in the Amended Statement of Claim is only in relation to the damages in lieu in respect of the Provisional Agreement.

79.  In light of the above findings and given the status of the plaintiff’s pleadings, the defendant is therefore not required to pay any sum to the plaintiff under the present action.

80.  Having said so, both parties counsel agreed on behalf of their respective clients at the closing submission stage that in the event the court dismissed the plaintiff’s claim, the sum of HK$600,131.50 paid into the court earlier by the defendant, together with any interest accrued thereon could nonetheless be paid out to the plaintiff in full satisfaction of the plaintiff’s damages as a result of the defendant’s breach of the Cancellation Agreement (as referred to in paragraph 73 above).

CONCLUSION

81.  My above analysis and findings are already sufficient to dispose of the plaintiff’s claims.  Strictly speaking, Issue 2 would not arise for this court’s determination.  It is also the view of this court that it would be improper for the parties to pursue the line of inquiries along Issue 2 given the above analysis.

82.  By reason of the foregoing, the plaintiff’s claims should be dismissed in their entirety.

ORDER

83.  In the premises, this court hereby enter judgment in favour of the defendant and order that:-

(1)  The plaintiff’s claims herein be dismissed in their entirety; and

(2)  The sum of HK$600,131.50 paid into the court by the defendant on 28 May 2015 be released to the plaintiff on the basis as mentioned in paragraph 80 above, with liberty to apply in relation to any matter arising out of the payment out.

84.  As for the question of costs, the norm is that costs should follow the event.  I can see nothing why I should depart from such norm in this case.  In these circumstances, I also make a costs order nisi thatthat the plaintiff do pay the defendant the costs of this action, to be taxed if not agreed, with certificate for counsel. The costs order nisi shall become absolute in the absence of application to vary the same within the next 14 days. 

85.  Lastly, it remains for me to thank counsel for their assistance.