HEALTH LINK INVESTMENT LTD. v. PACIFIC HAWK INVESTMENT LTD.

1993 No. A9550

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In this Action the Plaintiff claims the sum of $5,000,000.00 plus interest. That sum was paid on the 23rd June 1993 on behalf of the Plaintiff to the Defendant. The sum represented the initial deposit for the purchase of the entire issued share capital of Investar Ltd. Whereas the intention of the parties was that there would be a transfer of a building known as Connaught Building the transaction was to be effected by the transfer of the shares in the company whose only asset was that building.

2. The matter arose in this way. There are two documents, both dated the 23rd June 1993, which have to be read together. They are both on the headed paper of MRT Property Agency Ltd. The first is a simple document which is expressed as an offer, subject to contract, on behalf of an unnamed principal to buy the building for $442,000,000.00. It contains the following clause:

"Deposit:

20% including the earnest money to be payable upon signing of the formal Sale and Purchase Agreement. Within 14 days after signing of this offer."

3. The earnest money was the sum of $5,000,000.00 which was said to be payable on acceptance of the offer. Completion was to be 30 days from signing of the formal sale and purchase agreement. This document was signed by both MRT Property Agency Ltd. and the Defendant.

4. The terms of that letter have to read in the light of a letter of the same date again written by MRT Property Agency Ltd. That latter document contains amending terms. The price remained the same but the agreement was altered to be a purchase of the share capital of the company owning the building. The earnest money of $5,000,000.00 was to be treated as initial deposit and part payment of the offer price. Clause 4 of this letter reads as follows:

"4. A further deposit and part payment of HK$88,400,000.00 (equivalent to 20% of the Offer Price including the initial deposit) shall be paid upon signing of the formal Sale and Purchase Agreement which shall contain the basic terms contained in our earlier letter of the even date and as amended herein .... and the formal Sale and Purchase Agreement shall be signed between the parties within 14 days after the signing of this Offer."

5. That letter was again signed by both MRT Property Agency Ltd. and the Defendant.

6. If one pauses there for a moment, it seems to me that the agreement was clearly that the formal sale and purchase agreement had to be executed within 14 days and the further deposit had to be paid on signing.

7. The 23rd June 1993 was a Wednesday. It was not until the following Monday that the Plaintiff's solicitors wrote to inform the Defendant's solicitors that they were acting for the intended purchaser, without naming who it was. They asked for the basic documents they would need in order to prepare the formal agreement. Those documents were sent the next day.

8. On the Friday of that week, 2nd July, the Defendant's solicitors wrote a further letter. That letter, inter alia, reminded the Plaintiff's solicitors that the formal agreement should be signed by the 7th July. The letter asked for the draft by the close of business the next day. The letter also contains a paragraph which reads:

"We are also instructed that time shall be of the essence of the agreement as contained in the said offer letter."

9. On the 5th July the Plaintiff's solicitors wrote back saying that although it was intended that the formal agreement should be signed on the 7th July, it appeared there would be insufficient time for the Defendant's solicitors to approve the draft. They therefore asked that the time for signing the formal agreement be extended to the 14th July.

10. The legal position seems to me that up until this juncture there was an agreement between the Defendant on the one hand and an unnamed client of MRT Property Agency Ltd. and the Plaintiff's solicitors on the other. Time was not of the essence. It was not so specified in the documents of the 23rd June. The letter of the 2nd July did not make time of the essence because one party could not unilaterally add that term to the contract. Although Mr. Sung of the Defendant told Mr. Lee of MRT Property Agency Ltd. that the Defendant would forfeit the deposit if the further deposit was not paid in time, as set out in paragraph 18 of his witness statement, there still does not seem to have been a specific agreement to that effect.

11. I appreciate that the Hong Kong property market is often fast moving and that the property concerned is a substantial property even by the standards of the Hong Kong property market, but I do not consider these factors dictate that I should imply that time was of the essence. That is not to say however that the matter was not arguable at that stage. Furthermore there is no dispute that time could be made of the essence by agreement between the parties.

12. Even on the basis that time was not of the essence, if the formal sale and purchase agreement were not supplied at least by the 7th July the purchaser would be in breach because it was the purchaser's duty to draft the document. It would not be a repudiatory breach, but breach it would be. What the remedies would be for such breach do not concern the Court today. Therefore if the extension requested by the Plaintiff's solicitors letter of the 5th July were granted it would prevent the Plaintiff from being in breach of the agreement of the 23rd June for failing to provide and sign the draft agreement by the 7th July.

13. On the 6th July the Defendant's solicitors wrote saying first of all that in their client's view time was of the essence of the agreement of the 23rd June. The letter then said that the Defendant would hold the Plaintiff's solicitors' client liable for performance of the agreement including:

"...in particular, the payment of the further deposit and part payment of purchase price in the amount of HK$88,400,000.00 (equivalent to 20% of the price including initial deposit) and the signing of the formal Sale and Purchase Agreement within 14 days after the 23rd June 1993.

However, our client will have no objection, by way of indulgence to your client, to considering any draft formal Sale and Purchase Agreement sent to us by 12:00 noon on Saturday, 10th July 1993. We trust you will advise your client thereof accordingly."

14. It seems to me that the Defendant's solicitors wrongly put a construction on the Agreement that time was of the essence and wrongly divorced the requirement to make the further deposit from the signing of the formal Sale and Purchase Agreement. Be that as it may, what that letter said was that the Defendant was prepared to extend time for the drafting of the formal agreement (that would have the effect the Plaintiff would not be in breach of the agreement). The contrast however between that extension and the previous paragraph makes it clear that the Defendant was not extending time for the payment of the further deposit. That seems to me to have been a reasonable attitude. It will be borne in mind that what was in essence being talked about was the sale of a substantial piece of property and the buyer had not by then been identified. The Defendant had no way of telling whether the party with whom it was dealing was of substance or a speculative party of straw. One can well imagine that the Defendant would take the attitude that it would not be prepared to extend time in such circumstances except if it were safeguarded by a substantial deposit. What in effect that letter did, therefore, was to say that the quid pro quo for extending time so that the Plaintiff would not be in breach was that time would be treated of the essence, that the further deposit would be paid within 14 days of the 23rd June and that the draft agreement would be delivered to the solicitors' office by 12:00 noon on the 10th July.

15. Also by letter of the 6th July MRT Property Agency Ltd. informed the Defendant of the Plaintiff's name.

16. By letter of the 7th July Plaintiff's solicitors wrote back saying that they noted the contents of the letter of the 6th July; they named their client as the Plaintiff and said that they would let the Defendant's solicitors have the draft by 12:00 noon on Saturday, the 10th July. By saying that it seems to me that the Plaintiff's solicitors were accepting the terms on which the extension was offered in the letter of the previous day namely that the agreement would be treated as one where time was of the essence, the time for providing the payment of the further deposit was not dependent on the signing of the formal agreement, but until extension both the payment of the further deposit and the signing of the draft agreement had to take place on the same day namely the 7th July.

17. On the 8th July apparently just after 3:00 p.m. the Defendant's solicitors sent a letter by fax to the Plaintiff's solicitors to say that as the Plaintiff had failed to pay the further deposit the Defendant was treating the failure as repudiation of the agreement and forfeiting the initial deposit. The Plaintiff's solicitors wrote back the next day to say that the forfeiture was wrongful and itself constituted repudiation which was accepted. The matter ended shortly thereafter with these proceedings.

18. It follows from what I have said that in my judgment the original terms of the agreement had been varied as a result of the letter of the 5th July requesting an extension of time, the letter of the 6th July spelling out that time was of the essence and that the requirements of payment of the further deposit and the provision of the formal agreement were to be treated separately and extending only the time for providing and thereafter signing the agreement and the letter of the 7th July accepting the position as set out in the 6th July letter. By not paying the further deposit it seems to me that the Plaintiff was in breach, time was of the essence and that the Defendant was entitled to treat the Plaintiff's breach as repudiation and forfeit the deposit.

19. I have reached the conclusion that time was of the essence without alluding to Mr. Sung's evidence that after the letter of 6th July he told Mr. Lee that unless the extra deposit was paid the Defendant would not have any further dealing with the purchaser. Again I do not consider that this one sided conversation on its own could have altered the contractual relations, but I accept Mr. Sung's evidence and clearly the Defendant did not take the Plaintiff by surprise.

20. In the circumstances I dismiss the Plaintiff's claim, give judgment for the Defendant and make an Order Nisi that the Defendant do have its costs of this Action to be taxed if not agreed.