CROWNING SUCCESS LTD v. BRIGHTLAND CORPORATION LTD AND ANOTHER

CACV 110/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 110 OF 2009

(ON APPEAL FROM HCA NOS. 1445 AND 1540 OF 2005)

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BETWEEN

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(Actions consolidated by Order of Master Lung dated 9 June 2006)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1.  This was an appeal by the second defendant (“the vendor”) from an order of Burrell J of 3 April 2009 made in a consolidated action. The matter concerned a confirmor sale of commercial premises known as Unit C on the 45^th floor of Convention Plaza in Wanchai (“the property”). At the conclusion of the hearing the appeal was dismissed. The reasons appear below.

Background

2.  On 30 December 2004, the vendor agreed to sell the property to the first defendant (“the purchaser”) for $14.8 million. The completion date was to be 22 July 2005 (“the head agreement”).

3.  On 18 January 2005, the purchaser entered into a sub-sale agreement with the plaintiff (“the sub-purchaser”). The consideration was $17.8 million and the completion date was the same as that under the head agreement i.e. 22 July 2005. The sub-sale to the purchaser was a back-to-back arrangement.

4.  When the head agreement was signed, the 45^th floor had not been partitioned but there was a rider annexed to the head agreement which the parties signed. This was a floor plan signed by a certified architect showing the location of the unit, its dimensions and shape and which stated the saleable area to be 144.42 sq m (“the plan”). That plan corresponds to plan A of the appendix to the judgment.

5.  The vendor allowed inspection of the property at around 1 p.m. on the day for completion. A firm of architects acting on the joint instructions of the purchaser and sub-purchaser inspected the unit and discovered that the unit on site had a smaller saleable area (some 200 sq ft. less) and a different configuration from the unit on the plan. Measurements were taken and a plan drawn up showing the unit on site, this being plan B of the appendix to the judgment.

6.  Later that afternoon, at about 4:40 p.m.,the purchaser’s solicitors sent a letter to the vendor’s solicitors in the following terms:

“Dear Sirs,

Re:  Unit C, 45th Floor, Office Tower, Convention Plaza, 1

  Harbour Road, Hong Kong (“the Property”)  

We are informed that our client together with an architect has inspected the above property at about 1:00 p.m. today.

The architect has reported that on-site layout of the Property is different from that as shown on the 45^th Floor Plan (copy enclosed) annexed to the Provisional Agreement for Sale and Purchase dated 30th December 2004.  In particular, the part highlighted yellow (“Yellow Area”) on the attached plan has been excluded from the Property.  The architect has advised that the Yellow Area constitutes a net floor area of about 200 sq. ft.  The reduction in area is significant and substantial not only in terms of the reduction in the saleable area but also, more importantly, because with the exclusion of the Yellow Area, the Property will be without a sea-view.

We are instructed that our client would not have offered to purchase the Property if its saleable area is less than what your client has represented and contracted to sell and, more importantly, if the Property is without a sea-view.  Your client no doubt appreciates that a property without a sea-view is substantially different from one with a sea-view.  The Property is not what our client has bargained for.  By reason aforesaid, your client has breached the Provisional Agreement.

By reason of the aforesaid, we are instructed that our client hereby demand you to forthwith return to us all monies paid to you or your client pursuant to the Provisional Agreement and we reserve our client’s rights to claim against your client for its losses in the matter.”

7.  Immediately prior to that letter, the sub-purchaser had written in similar terms to the purchaser.

8.  The vendor’s case at trial was that the saleable area offered was not less than 144.402 sq m and that it was approximately located within the area show on the plan. The judge rejected the vendor’s case and found that the unit on site (being that which the vendor had made available for inspection and plainly intended to deliver) was not the same as the unit shown on the plan in that it had a different saleable area and a different geometrical shape. Accordingly, he held in favour of the purchaser and the sub-purchaser and against the vendor.

This appeal

9.  In the written submissions of Mr Chan SC who represented the vendor, the appeal was put on the basis that the vendor had until midnight to put right the default and it was the purchaser who had jumped the gun and was in breach of the head agreement by prematurely demanding the return of all monies by its letter sent to the vendor at around 4:40 p.m.. This was clearly a new point that was never run below and one that is fact-sensitive.

10.  At the hearing, Mr Chan SC had the good sense not to seek to argue the appeal on that basis. In fact, at the outset of the hearing, the grounds set out in his written submissions were all but abandoned. The appeal argued at the hearing turned on a short point: whether the principle stated in Camberra Investment Ltd v Chan Wai-tak [1989] 1 HKLRD 568 was applicable to the facts of the case. Mr Chan accepted that unless that principle applies, his appeal must fail.

11.  Before turning to Camberra, there is a preliminary point that must be disposed offirst. An aspect of the now abandoned case on appeal was that as the head agreement did not specify any time for completion, the midnight rule applies such that the vendor had until midnight of 22 July 2005 to perform its obligations. But at the trial both the vendor and the purchaser had proceeded on the basis that the time for completion of the head agreement was 5 p.m. In those circumstances, I do not consider that it is open to the vendor to raise that point on appeal and to pursue it as a feature of the ‘new’ case run at the hearing.

12.  I now turn to Camberra. In that case the agreement provided for completion “on or before 28^th February 1987”. That day was a Saturday. The defendant vendor, based on advice he had received, was of the view that completion had to take place before about 1 p.m. or not at all. The same firm of solicitors acted for both parties. The defendant vendor waited at the solicitors’ offices until about 1:25 p.m. when he left, having at 12:45 p.m. instructed the solicitor to forfeit the deposit and to regard the agreement as repudiated by the purchaser plaintiff which repudiation he accepted. For his part, the plaintiff purchaser was unable to effect payment on the day for completion but only did so on the following Monday.

13.  The court ruled that the parties had until midnight of the day fixed for completion to perform their mutual obligations. On the facts, it was held that the contract remained uncompleted at midnight on that day by the fault of both parties. The defendant vendor was at fault because his purported notice of rescission was premature and ineffective and he had neither executed nor tendered an assignment before 1 p.m. and thereafter was denying his obligation so to act. The plaintiff purchaser was also at fault in failing to tender the balance of the purchase price by midnight on 28 February.

14.  Hunter JA held (at 574E) that:

“The contract did not then terminate…  It remained on foot with the substitution of a reasonable time for the failed express condition.”

15.  That is the principle which Mr Chan sought to invoke in the present case. But, on the facts of the present case, by 4: 40 p.m. when the purchaser rescinded the head agreement, the vendor was already in breach of its obligations. Itis unarguable but that the vendor was in no position to deliver the property it had agreed to assign. On the findings of the judge, this is a clear case of anticipatory breach by the vendor. The Camberra principle can have no application to the present case and is irrelevant. Accordingly, the appeal against the purchaser must fail.

The costs order below

16.  The judge made an order nisi that, inter alia, the sub-purchaser’s costs, both of the consolidated action and costs incurred prior to consolidation, be borne by the vendor. That order was made absolute when the judge dismissed the vendor’s application to vary the order nisi.

17.  The vendor seeks a variation of the costs order but only regarding the vendor’s costs incurred in the sub-purchaser’s claim against the vendor. (The vendor did not pursue its appeal as regards the purchaser’s costs in defending the sub-purchaser’s claim against the purchaser at the hearing and that issue need not be addressed.)

18.  At the trial below, the sub-purchaser sought a declaration against the vendor that the sub-purchaser was entitled to a lien over the whole of the 45^th floor (limited to the amount of lien that the purchaser could claim against the vendor for breach of the head agreement) and damages in tort for inducing the breach of contract between the sub-purchaser and purchaser. Those claims were dismissed.

19.  Mr Chan SC submitted that the proper order should have been that costs should follow the event as between the sub-purchaser and the vendor so that the vendor being the successful party should not have to pay the costs of the case brought against it by the sub-purchaser.

20.  In dismissing the vendor’s application to vary the costs order nisi, the judge said this:

“  COURT: The prime purpose of an order for costs is to reflect the overall justice of the case.  In this case I am not persuaded that the order nisi fails to do that.  I prefer the approach advanced by the plaintiff and the 1st defendant that the latter should be looked at in the round and a global view be taken.  And bearing in mind that costs are always in the discretion of the court, I do not think that the costs order in this case should be fragmented into a number of pieces as proposed by the 2nd defendant.

The plaintiff had to come to court and it conducted the litigation in the way it did which I consider to be entirely reasonable and the costs incurred by the plaintiff and the 1st defendant all flowed from that starting point.

I am satisfied that the order meets the justice of the case and I decline to alter it.”

21.  The trial of the consolidated action had occupied six hearing days. There were 10 witnesses who gave oral evidence. Given the defence run at trial (as to which see § 8 above), as the judge observed in § 12 of his judgment, the key issues were entirely factual. It can be gleaned from the judge’s findings and reasons that the disputed issues were mostly factual pertaining to the dimensions, size and shape of the unit on site at the time of the inspection, the location of the walls and whether they were cavity walls. In gauging the time taken up by particular issues,the trial judge has a clear advantage over this court but, on any view, the two claims raised by the sub-purchaser against the vendor could not have been but peripheral to the main battle fought below.

22.  In making the costs order that he did, the judge was guided by the principle that it should reflect the overall justice of the case. That approach cannot be faulted. It was well within his discretion to refuse to fragment the costs. The challenge to the judge’s exercise of his discretion is misconceived and must fail.

Hon Wright J:

23.  I agree and have nothing to add.

Hon Bharwaney J:

24.  I agree with the judgment of Le Pichon JA.