XCHRX EUROPTEX GARMENT LTD. v. MAXWEAR LTD.

HCA 22374/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 22374 OF 1998

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REASONS FOR JUDGMENT

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Introduction

1. The Plaintiff was the purchaser and the Defendant was the vendor under 2 sale and purchase Agreements. The 2 Agreements provided for the sale and purchase of 2 shop premises in Times Tower, Cheung Sha Wan Road, Kowloon. The Plaintiff did not complete either of the 2 transactions.

2. On 31 December, 1998, the Plaintiff issued the Writ in this action claiming in essence the return of the instalments payment it paid to the Defendant earlier under the 2 Agreements. On 26 March, 1999, the Defendant filed a Defence and Counterclaim claiming, inter alia, that the Plaintiff breached the 2 Agreements and for damages against the Plaintiff to be assessed for such breach. The Plaintiff failed to file a Reply and Defend to Counterclaim in time. On 19 April, 1999, interlocutory default judgment was entered against the Plaintiff in the Defendant's favour on the Counterclaim with damages to be assessed.

3. The Plaintiff applied earlier for the default judgment to be set aside. Apart from making that application, the Plaintiff also applied under RHC O.14A for, inter alia, a ruling on the construction of Clause 16 of the Agreements. The learned Master dismissed the application to set aside default judgment and ordered (pursuant to the O.14A application) the registration of the lis pendens to be vacated. This appeal was brought by the Plaintiff against the said order dismissing its application to set aside the default judgment. The appeal was opposed by the Defendant essentially on 2 grounds :-

(a) a ruling in the Defendant's favour was made by the learned Master on 11 October, 1999 on its Counterclaim. Since the Plaintiff has not appealed against this ruling, it was bound by the ruling and therefore this appeal was at least technically defective;

(b) in any event, the Plaintiff was unable to show any meritorious defence to the Counterclaim.

4. At the end of the hearing on 2 December, 1999, I allowed the Plaintiff's appeal, set aside the default judgment and the Master's orders (both in relation to the O.19, r.9 application and the O.14A application) and gave leave for the Plaintiff to defend the Counterclaim unconditionally. The following are the reasons for the decision (which I indicated would be handed down on a date to be notified to the parties).

5. I should also mention that the points put forward by Mr Chang for the Plaintiff (who did not appear before the learned Master) were very different from those raised by the Plaintiff's counsel then appearing before the learned Master.

6. It was not disputed that the default judgment was entered regularly. Hence, one of the more important matters relevant to the exercise of my discretion was whether there were merits in the defence proposed to be advanced if the default judgment is set out. For this reason, I propose to deal with point (b) of defence counsel (set out above) first before dealing with his point (a).

Was the "Notice to Complete" Defective?

7. The first point which Mr Chang raised related to the notice to complete the transaction given by way of a letter dated 28 May, 1996. The relevant part of this letter reads :-

"We are pleased to inform you that Occupation Permit covering the Property have been issued. Pursuant to the Agreement for Sale and Purchase of the Property ..., you are obliged to complete the purchase and execute the assignment within 14 days from the date hereof ..."

8. Mr Chang submitted that this notice was given purportedly pursuant to Clause 4 which reads :

"The purchase shall be completed ...

(i) within fourteen days of the Purchaser being notified in writing that an Occupation Permit relating to or covering the said premises has been issued and that the Vendor is in a position to validly assign the said premises to the Purchaser ..." (underline supplied)

9. Mr Chang argued that the purported notice was defective and therefore of no effect. It follows that the date for completion has not been fixed and the liability of the Plaintiff to pay the balance of the price (pursuant to Clause 2 and the 5th Schedule of the Agreement (which contain a similar provision as Clause 4)) has not arisen. In this connection, Mr Chang asked me to note the following matters :-

(a) both the Plaintiff (as purchaser) and the Defendant (as vendor) were represented by the same firm of solicitors : see Clause 13 of the Agreements;

(b) the Defendant (as vendor) was under a duty to show good title to the suit properties : see Clause 14 of the Agreement;

(c) since the Plaintiff was represented by the same firm of solicitors as the Defendant's, there is (and was) no contractual provision regarding how and when good title could be shown or whether it was in fact shown;

(d) the requirement in Clause 4 (as well as in the 5th Schedule regarding the payment of the balance of the price) for the Defendant to notify in writing that it was in a position to validity assign therefore served the purpose of enabling the Purchaser to know that there was good title to the suit properties;

(e) further, according to the observation of the Court in Tsing Lung Investment Co. Ltd. v. Yu Sai Kin [1989] 1 HKC 513 at 517B-C, there may be other problems relating to the property. The notice would also enable the purchaser to know that there were no other problems.

10. Further, Mr Chang referred to Treital : The Law of Contract (8th Ed.), pp.680-1 which stated :-

"... A contract may expressly provide that one party shall be entitled to rescind in the event of some specified failure by the other to perform ... The purpose of such clauses is to prevent disputes from arising ... In cases of this kind 'certainty is of primary importance' ... the law normally gives literal effect to express provisions for determination, it does insist on compliance with two requirements. First, the party seeking to terminate must act strictly in accordance with the terms of the clause ..." (underline supplied)

11. In light of the foregoing, Mr Chang argued that the Plaintiff had raised a defence with "a real prospect of success", or one "to which, as a matter of common sense, heed should be paid" as to :-

(a) whether the purported notice did not strictly comply with Clause 4 (or the 5th Schedule) in failing to notify that the Defendant was in a position to validly assign;

(b) if so, whether the date of completion had not validly been fixed pursuant to Clause 4 of the Agreement;

(c) if so, whether the Plaintiff's liability to pay the balance of the price pursuant to Clause 2 (and the 5th Schedule) of the Agreement had not yet arisen.

(For the legal test in this regard, see Premier Fashion Wears v. Li [1994] 1 HKC 213 and Day v. RAC Motoring Services Ltd. [1999] 1 All ER 1007 as explained in Redland Concrete v. Hing Lee Construction, H.C.A. No.8140 of 1998, at pp.19-21.)

12. In reply, Mr Ho for the Defendant asked me to find that the letter dated 25 August, 1996 had in substance given the notice that the Defendant was in a position validly to assign. I understand Mr Ho to be arguing that although there was no express word in that letter to such effect, the necessary implication from the whole tenor of the letter must be that the Defendant had stated it was in a position to assign. For some strange reason, Mr Ho denied that this was what he meant and insisted that the notice was in fact (i.e. expressly) given. Merely because a thing was stated by implication does not make it any inferior to something stated expressly (provided such implication can properly be made). Paragraphs 2.3 and 2.4 of Mr Ho's Supplemental Skeleton Argument stated :-

"2.3 In the 2 letters ... the Plaintiff was informed that the Occupation Permit had been issued. The letters also asked the Plaintiff to complete the purchase and 'execute the assignment' within 14 days. The letters further notified the Plaintiff to make an appointment 'for execution of the relevant Assignment'.

2.4 Plainly, these letters did notify the Plaintiff that the Defendant was in a position to assign ... By asking the Plaintiff to execute the assignment was itself a notification that the Defendant was indeed in a position to assign the respective properties." (underline supplied)

13. These two paragraphs are in effect saying that the letters must have implied that the Defendant was in a position to assign (although they did not expressly say so); otherwise, they would not have asked the Plaintiff to execute the assignment.

14. Having considered the two letters, I agree with Mr Chang's argument; in other words, the Plaintiff had shown that whether such an implied notice had been given in the two letters was an issue over which the Plaintiff had "a real prospect of success" or one "to which heed should be paid".

Was there Irrevocable Waiver by the Plaintiff?

15. Mr Ho argued that even if the notice is defective or irregular, the Plaintiff has irrevocably waived this defect or irregularity by :-

(a) not raising any objection (until the hearing of this appeal);

(b) accepting that the Agreements had been validly terminated (in the pre-action correspondence and the pleadings) and only asked for the refund of the instalment payments.

16. I did not agree with Mr Ho's arguments. The Plaintiff might have been inactive regarding this issue (until the commencement of this action). It might also be accused of not having taken this point until this appeal. But it did nothing to render it beyond argument that it had irrevocably waived its right to do so. On the contrary, I considered that it also had a defence over this point which justified the default judgment to be set aside. In this connection, I noted the comments of the Hong Kong Court of Appeal in Woomera Co. Ltd. and Another v. Provident Centre Development Ltd. [1985] HKLR 263 regarding a litigant's position to "re-surrect" a point after it had been expressly abandoned earlier.

Other Issues

17. Mr Chang went on to argue that if I agree with him that there was an issue as to whether the notice to complete was defective, then it was also arguable whether the Defendant (rather than the Plaintiff) was in repudiatory breach of the Agreement by not completing the transactions and/or in terminating them by purporting to accept the Plaintiff's "breach". I also agreed with him over this point.

18. Since I found that the Plaintiff had shown a meritorious defence over the "defective notice to complete" point, it was unnecessary for me to set out in detail the other points raised by the Plaintiff about :-

(a) whether the letters of the Defendant's solicitors dated 21 June, 1996 and 27 September, 1996 amounted to an election by the Defendant for the relief under Clause 16 of the Agreement to the exclusion of the claim for common law damages;

(b) whether the failure to plead that the Plaintiff had been in repudiatory breach of the Agreements and/or that the breach had been accepted by the Defendant was a fatal flaw in the Counterclaim;

(c) whether the Defendant was estopped from asserting its right to claim common law damages and/or whether the Plaintiff had suffered prejudice.

Issues Relating to the Construction of Clause 16

19. I should also mention (so as to avoid any doubt at a later stage of these proceedings) that the Defendant relied on the case of Woomera (supra). The contractual clause involved in that case is very similar to (if not the same as) Clause 16 in the Agreements in this action. While Mr Chang has not raised any point relating to this aspect in his oral submissions (he tried to distinguish it in the written submissions), he reserved his position as to whether the Woomera case was correctly decided.

Conclusion

20. For the above reasons, I allowed the appeal as regards the O.19, r.9 appeal in the manner stated earlier.

The O.14A Order

21. As regards the order made by the learned Master relating to the O.14A application, it must be noted that the actual order was for vacating the registration of the lis pendens. The earlier registration of thelis pendens was based on the Plaintiff's claim that it is entitled to a lien for the sums it paid pursuant to the Agreements. In view of the way in which the Plaintiff advanced its case at the appeal hearing, whether such a lien exists depends (among other things) on whether the Defendant has breached the Agreements (as Mr Chang contended). Thus, even if the Woomera case was correctly decided and that Clause 16 of the Agreements ought therefore to be construed against the Plaintiff in the Defendant's favour, this would not have finally determined the issue of the existence of the lien asked for by the Plaintiff. The issue was therefore not appropriate for a ruling under O.14A : see especially O.14A r.1(1)(b).

22. For this reason, although no formal appeal has been taken out against the Master's O.14A order, I considered that it followed from what was stated earlier that it must be set aside as well. The O.14A order should therefore be set aside together with the O.19, r.9 order (to save time and expenses) instead of requiring the Plaintiff to formally lodge another appeal against it.