XCHRX MILIKING INTERNATIONAL LTD. v. SUPER KEEN INVESTMENTS LTD.

HCA 15825/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15825 OF 1999

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REASONS FOR DECISION

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1. This is an appeal from a decision of Master Jones given on 21 March 2001 when he gave judgment for the plaintiff under the provisions of Order 14. At the hearing on 9 April 2001 I dismissed the appeal and confirmed the order of the Master. I now give my reasons for so doing.

2. The proceedings arise out of two contracts for the sale and purchase of property being the 11th and 12th floors of a building under construction in Wellington Street, Central, and was part of a sequence of sales involving this building which are relevant to this claim.

3. On 13 December 1993 the property was sold to a company called Grand Million Development Ltd for the sum of $256,000,000.00. Grand Million then agreed to sell the building to Global Time Investments Ltd on 8 April 1994 for $405,000,000.00. On 11 April 1994, Global Time agreed to sub-sell the building to the defendant for $600,000,000.00, and on 9 September 1994 the contract the subject of this action was entered into between the plaintiff and the defendant to purchase the two floors for a sum of $55,040,000.00, and payments by way of deposit and part payment were made by the plaintiff over a number of months in the total sum of $16,512,000.00. The construction of the building was due to have been completed by 30 June 1995, but on 29 June 1995 the architect issued a certificate for extension of time of 294 days, taking the time to 19 April 1996. In November 1995, the defendant questioned the architect's certificate and gave notice to Global Time to complete within a reasonable time, and in default of such completion, in February 1996, the defendant rescinded their agreement for sale and purchase. In April 1996, Global Time in turn rescinded their agreement with Grand Million. In High Court proceedings between the defendant, as plaintiff, and Global Time, the defendant obtained, on 16 October 1998, a declaration that their agreement had been effectively rescinded and an order for repayment of their deposit of $101,612,000.00. This judgment was later upheld on appeal to the Court of Appeal in January 2000, and, in December 2000, to the Court of Final Appeal.

4. The defendant being unable to complete its agreement for sale and purchase with the plaintiff herein, the latter, understandably, requested repayment of their deposits and part payment. This was by letter in June 1999. In reply to this, they received from the defendant's solicitors a letter stating that the defendant's rescission of their agreement with Global Time "does not necessarily alter our client's position vis-à-vis your client", and have since declined to refund the payments to the plaintiff.

5. The defendant's case now is that it was the plaintiff who, in early 1996, with property prices falling, became disenchanted with the deal, and approached the defendant to see whether it was possible for the defendant to rescind its contract with Global Time, allowing the plaintiff in turn to rescind its agreement with the defendant. The defendant says that this agreement was to the effect that the plaintiff would make no claim on the defendant pending the outcome of the anticipated legal proceedings between the defendant and its vendor, and that, should they be successful, they would then negotiate as to how much should be repaid to the plaintiff.

6. I do not propose to investigate the facts in detail here. There is clearly a dispute as to the existence of any agreement which would be a matter for trial, and in any event, the fact that the plaintiff waited until June 1999, over three years after the original rescission, to demand repayment, goes some way to supporting the defendant's contention that some agreement had been entered into, even if it was only to delay demanding repayment of deposit until the defendant had recovered its own. However, the defendant's principal, indeed only real, defence here is the agreement they say they had with the plaintiff to negotiate as to how much should be repaid, and that the plaintiff cannot now claim the whole sum, or possibly any of it, until the defendant sees what the legal proceedings have cost and they have negotiated how much of that the plaintiff should be responsible for.

7. The plaintiff's case is that an agreement to negotiate is no agreement, being too uncertain and as a matter of law cannot have any effect. For the defence, Mr Smith has sought to persuade me that the agreement can be seen as an agreement to use best endeavours, which can, on the authorities, create a binding contract. He accepts, as he must, that an agreement to negotiate by itself is unenforceable, but says that an agreement to use best endeavours must be implied to give it business efficacy, and that it is accordingly arguable that binding contractual relations between the parties existed. He relies for this proposition on the case of The Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989]1 Lloyds Law Rep 205.

8. I do not accept the defendant's case for two reasons. While I accept that an agreement to use best endeavours can create legal obligations, there is no evidence of such an agreement here. There is no suggestion by the defendant that this was anything other than an agreement to negotiate, with nothing more - no time limit, and no suggestion as to the machinery to achieve a settlement should negotiation not produce an agreement. Mr Smith says that it must be implied that they would use their best endeavours, to give the agreement business efficacy. If this is so, every agreement to agree would fall into the same category, which cannot be the case. The second reason I disagree with him is that it is easy to see that the Queensland case can be distinguished. In that case there was a formal and detailed written agreement in respect of a first period of five years, with the terms of the period after that to be agreed. However, the agreement clearly set out guidelines for such later negotiations and, indeed, the agreement itself provided for arbitration in the event of disputes arising out of the agreement. Here there is nothing. It is at most an agreement to see what the situation is later, and negotiate. As such it must be void and unenforceable for uncertainty.

9. For these reasons I dismissed the appeal with costs to the plaintiff.