UNION EAGLE LTD. v. GOLDEN ACHIEVEMENT LTD.

1991, No. A7497

__________________

H E A D N O T E

__________________

Property law - Sale and Purchase Agreement provided for completion at 5:00 pm - Time was essence of the Agreement - Parties later agreed to complete by solicitors' undertaking - Purchaser tendered payment 10 minutes late on the day of completion - Vendor rescinded Agreement - Purchaser asked for specific performance.

1991, No.A7497

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

___________

____________

___________________

J U D G M E N T

____________________

Facts

1. This is yet another litigation in which the purchaser of a property failed to tender to the vendor the balance of the purchaser price within the time stipulated in the contract of sale. The delay in this case is 10 minutes.

2. By an Agreement dated 1st August 1991 ("the Agreement"), the Plaintiff/Purchaser agreed to purchase from the Defendant/Vendor the property situated at Flat A, 30/F, Block 5 of Pacific View, No.38, Tai Tam Road, Hong Kong together with car parking space No. 23 ("the property). The purchase price was HK$4,200,000. HK$420,000 were already paid as deposits under the terms of the Agreement. The balance of the purchase price of HK$3,780,000 was to be paid on or before the date of completion. Part III of the Second Schedule of the Agreement provided that the completion date was on or before 30th September 1991.

3. The following are the relevant clauses of the Agreement : -

"3. Completion shall take place at the office of Messrs Robert C.K. Tsui & Co. Solicitors, on or before the date set out in Part III of the Second Schedule hereto (hereinafter referred to as the "completion date") and before 5:00 pm on that day if it is a weekday or before 12:00 noon on that day if it is a Saturday, when the residue of the purchase money shall be fully paid and the Vendor and all other necessary parties (if any) will execute a proper assignment or assurance in favour of the Purchaser or his nominee or nominees, sub-purchaser or sub-purchasers of the Property hereby agreed to be sold and purchased to the purchaser free from all incumbrances."

"4. Time shall in every respect be of the essence of this Agreement."

"12. If the Purchaser shall fail to comply with any of the terms and conditions of this Agreement the deposit money and any part payment of purchase price so paid shall be absolutely forfeited as and for liquidated damages (and not a penalty) to the Vendor and who may (without being obliged to tender an Assignment to the Purchaser) rescind this Agreement and either retain the Property the subject of this Agreement or any part or parts thereof or resell the same, either as a whole or in lot, either by public auction or by private contract, or partly by the one and partly by the other, and subject to such conditions and stipulations as to title or otherwise as the Vendor may think fit. Any deficiency arising from such resale and all expenses attending the same or any attempted resale shall be made good and paid by the Purchaser as and for liquidated damages, and any increase in price realised by any such resale shall belong to the Vendor. This Clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights under this Agreement or otherwise. On the exercise of the Vendor's right or rescission under this Agreement the Vendor shall have the right, if this Agreement shall have been registered in the Land office, to register at the Land office a Memorandum signed by the Vendor alone to rescind the sale of the Property and to vacate the registration of this Agreement. This clause shall not prevent the Vendor recovering, in addition to liquidated damages, damages representing interest paid or lost by his by reason of the Purchaser's failure."

"13. If the Vendor shall for any cause (other than the default of the Purchaser) fail to complete the said sale in accordance with the terms hereof then the said deposit shall be returned to the Purchaser who shall also be entitled to recover from the Vendor such further damages (if any) over and above the said deposit as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor."

"14. Nothing in this Agreement contained shall be so construed as to prevent the Purchaser from bringing an action for obtaining a decree for specific performance either in lieu of the aforesaid damages or in addition thereto."

"29. In this agreement, unless the contrary intention appears :-

(a) .......

(b) .......

(c) The word "Day" wherever using this agreement shall mean calendar days PROVIDED that when any of the date or dates stipulated for payment herein if the Completion Date shall otherwise fall on a day which is not a business day (defined as a day on which licensed banks are opened for business in Hong Kong) or shall fall on a day on which typhoon signal No.8 or above is hoisted in Hong Kong at any time during the business hours such date or dates for payment or the completion date (as the case may be) shall automatically be postponed to the next business day."

4. On 20th September 1991, F. Zimmern & Co. ("Zimmern"), solicitors for the Purchaser wrote to Robert C.K.Tsui & Co. ("Tsui"), solicitors for the Vendor, enclosing a draft assignment of the property and further proposed to complete the sale by way of solicitors' undertaking. Zimmern supplied to Tsui a draft undertaking letter.

5. On 25th September 1991, Tsui returned the draft undertaking letter with amendments to Zimmern. The draft letter was addressed to Tsui by Zimmern. The letter provided, inter alia, that :-

"On behalf of our client, Union Eagle Limited (i.e. the Plaintiff/Purchaser) and in order to complete the purchase of the above property on 30th September 1991 ("the completion date"), we enclose herewith the following cheques for the total sum of HK$3,780,000.00 which are split up as follows :

1. The said cheques are sent to you against your firm's personal undertaking (which is however subject to the usual Law Society qualifications) :-

1. ......

2. To send to us within twenty one days from the date of your receipt of this letter:-

(a) The enclosed Assignment of the above property ......

(b) The Release/Reassignment/Receipt on discharge of the existing charge/mortgage ......

(c) The existing Legal Charge(s)/Mortgage(s);

(d) The apportionment account in respect of the above property ......

(e) All the other title deeds and documents to which our client is entitled hereunder."

The signed undertaking letter was issued by Zimmern to Tsui on 30th September 1991.

6. The parties arranged for a final inspection of the property at 11:00 am on 30th September 1991. The Vendor however failed to turn up at the inspection. Miss Chow Suk Yee, a conveyancing clerk formerly in the employ of Tsui called up Miss Tin of Zimmern who was the conveyancing clerk and secretary acting on behalf of the Purchaser and informed her that the Vendor was absent for the appointment and reminded her that the balance of the purchase price must be received by Tsui on or before 5:00 pm that day, otherwise her client would exercise the right to forfeit the deposits and rescind the Agreement.

7. At about 12:00 noon on the same day, Miss Tin telephoned Miss Chow and confirmed that Zimmern would send the completion money at 3:00 pm and asked her to have the keys ready for collection by their clerk. At 12:25 pm, Mr Harry Rumjahn of the Vendor telephoned Miss Chow and informed her that he would deliver the keys of the property to Tsui at 4:30 pm. Miss Chow then telephoned Miss Tin at about 12:50 pm and informed her that the Vendor was expected at her office at 4:30 pm and requested Miss Tin to send the completion money at 4:30 pm that day. Miss Tin agreed to do so.

8. At 3:00 pm, Mr Harry Rumjahn sent a messenger to Tsui and delivered the keys. At about 3:30 pm, Miss Tin called Miss Chow and asked her if the key were ready. Miss Chow told her that they were and asked Miss Tin to send the completion money and relevant documents as soon as possible. In this connection, it should be noted that Miss Tin said the telephone conversation took place at 4:20 pm.

9. At 4:30 pm, when the messenger of Zimmern had not arrived, the atmosphere in Tsui's office turned rather grave and Mr Robert Tsui supervised over the matter. At about 4:50 pm when the messenger of Zimmern had still not arrived, Mr Robert Tsui asked everyone in the office to check their watches and to confirm that the time was correct. When at 5:00 pm, the messenger had still not shown up, Miss Chow, under the instruction of Mr Robert Tsui, telephoned Miss Tin at 5:01 pm informing her that their firm's messenger had not yet arrived with the purchase money and the Vendor reserved the right to forfeit the deposit and rescind the Agreement. Miss Tin's reply was that the messenger was on his way and asked Tsui to wait. Miss Chow made no promise to Miss Tin that her client would waive his right to rescind the Agreement and forfeit the deposit.

10. By that time, the attention of everyone in Tsui's office was concentrating on when the messenger of Zimmern would arrive. At 5:10 pm, the messenger arrived. The messenger told Miss Chow that he was the messenger from Zimmern and handed to her the purchase money and letter of undertaking. Miss Chow said to him that he was late. The messenger who was known as Jacky Chang then took a look at his wrist watch and answered "Yes". Miss Chow then asked him to wait and he did. Mr Robert Tsui immediately telephoned Mr Harry Rumjahn and informed him of the late tender of the purchase price and sought his instructions. He was instructed by Mr Rumjahn that he should refuse to accept the late tender and should forfeit all the deposits paid by the Plaintiff under the Agreement and to rescind the Agreement.

11. Immediately after the telephone conversation, Mr Tsui instructed Miss Chow to telephone Zimmern. At 5:11 pm, Miss Chow informed Miss Tin that the Vendor had exercised his right to forfeit all the deposit and rescind the Agreement and Tsui would return all the purchase money to the messenger. Mr Robert Tsui then dictated a letter and instructed Miss Chow to type out a letter dated 30th September 1991 to Zimmern dealing with the delay and the instructions from the Vendor to rescind the Agreement and to forfeit the deposit. After Miss Chow had typed the letter, she asked the messenger to sign at the bottom of it to signify his agreement that he only arrived at the office at 5:10 pm. The messenger signed his name and wrote down 5:35 pm which was the time of the signature. Miss Chow then handed the original letter to the messenger who left the office with the purchase money and the undertaking letter.

12. At about 5:28 pm, Mr Robert Tsui received a telephone call from Mr Hui, a solicitor of Zimmern. Mr Hui told Mr Robert Tsui that the delay was only about 10 minutes and the sale and purchase of the property should proceed despite the delay. Mr Robert Tsui replied that he only acted on his client's instructions and his instructions were not to accept the completion money but to forfeit the deposits.

Issues

13. The Purchaser is now seeking, inter alia, specific performance of the Agreement. The issues that call for determination in this case are as follows:-

1. When did the messenger arrive?

2. When was the purchaser required to pay the balance of the purchase price?

3. If the purchaser had failed to pay the balance of the purchase price within time, is it entitled to relieve against forfeiture of his interest in the property which will entitle it to specific performance of the Agreement?

4. Is the purchaser entitled to relieve against forfeiture of the deposit of HK$420,000?

When did the messenger arrive?

14. Although paragraph 11(f) of the Re-re-re-amended Statement of Claim pleaded that at 5:00 pm on 30th September 1991 the Vendor's solicitor's letter together with the cheques were tendered to the Purchaser for the completion of the sale, the Vendor has not called any evidence as to the time when the messenger arrived. The messenger did not give evidence. I accept the evidence of Mr Robert Tsui and Miss Chow that the messenger only arrived at 5:10 pm. I accept their evidence that everyone at the office was paying particular attention to the actual time of the messenger's arrival. Earlier in the day, Mr Rumjahn had asked Mr Tsui to remind the Purchaser not to be late in completing the purchase when the purchaser had failed to turn up for the inspection of the property. Although Mr Rumjahn in his witness statement did not refer to his reminder to Mr Tsui, I accept Mr Tsui's evidence that Mr Rumjahn had so instructed him. I accept Mr Tsui's evidence that he had instructed Miss Chow to inform Zimmern to tender the balance money before 5:00 pm or otherwise the Vendor would forfeit the deposits. Thus the question of time was of utmost importance to Tsui. Mr Robert Tsui said that in the past 5 years, he only had dealt with 2 cases of forfeiture of deposits and the present case was one of them and he was paying particular attention to the details.

15. Mr Kotewall, leading counsel for the Purchaser, challenged the contention of Mr Robert Tsui that the phone call was made to Zimmern at 5:11 pm, i.e. one minute after the messenger had arrived. He submitted that the conversation between Miss Chow and the messenger and the subsequent telephone conversation between Mr Tsui and his client would certainly take more than one minute. It may well be that Miss Chow did not call Zimmern within one minute of the arrival of the messenger, but I find that the telephone took place shortly after the arrival of the messenger at 5:10 pm and Mr Tsui and Miss Chow's insistence that the telephone took place at 5:11 pm does not affect the quality of the evidence.

16. Regarding the dispute whether there was a conversation between Miss Chow and Miss Tin at 3:30 pm or 4:30 pm that day, this does not affect the outcome of this case. On the evidence, I find that the conversation took place at 3:30 pm. Miss Chow was able to support her evidence by reference to her contemporary note which she made after the events on 30th September 1991.

When was the Purchaser required to pay the balance of the purchase money?

17. Completion means the complete conveyance of the estate and final settlement of the business. J T Farrand in Contract and Conveyance (4th ed.) at p.198 stated that:-

"There can be no doubt that the usual meaning is 'the complete conveyance of the estate and final settlement of the business' (per Stable J in Killner v. France [1946]2 ALL ER 83, at p.86; see also Lewis v. South Wales Railway (1852)10 Hare 113, at p.119). More recently Pennycuick V-C considered the meaning of the expression 'at the date of the completion of the said sale' and said :

'It seems to me that those words are themselves quite unambiguous and can only denote the date at which the sale of Church Farm is completed, in accordance with the ordinary meaning of that word in the language of conveyancing, namely, the execution of a conveyance and the payment of the purchase price (in Re Atkins' Will Trusts [1974]1 WLR 761, at pp.765-6). Thus in Maktoum v. South Lodge Flats Ltd. (1980) The Times 22 April, a purchaser of certain underleases at a purchase price of ￡1,221,100 which she had paid in full, being allowed to take possession, was held not to have complied with a notice to complete. Judge Mervyn Daives was reported as saying that 'completion' meant 'final settlement of the business'. Here there had been no such final settlement because final settlement included constituting the purchaser as owner of the legal estate, by the vendor executing and the purchaser accepting the appropriate deed of assurance.'....

It is a fundamental principle that the payment of the purchase money and the delivery of the conveyance are to be performed interchangeably (per Vaisey J in Palmer v. Lark [1945] Ch.182, at pp.194-5)"

18. It is clear that if the Purchaser was required to pay the purchase money by 5:00 pm that date, it could not rely on any de minimis rule that there was only a slight delay in the tender of the purchase price. Litton J.A. in Ip Ming Wai and Chau Pui Sang v. World Ford Development Limited, (CA 187 of 1992), overruling earlier decisions to the contrary, stated that :-

"But if, factually, it is beyond all dispute that one or other of the parties was in truth a few minutes late, I cannot see how the Court can relieve him of the vigor of his own contractual obligation. Any other approach means in effect that the Court would simply be rewriting the Contract for the parties - after the event, with the innocent party having no means of ascertaining what the new time that might be until he comes to Court and the Court pronounced upon it."

19. Mr Kotewall argued that although the Agreement provided that the completion was to take place on 30th September 1991 at the office of Tsui before 5:00 pm, the parties had subsequently varied the terms of the Agreement by agreeing to complete the sale by way of solicitors' undertaking. The undertaking letter made no reference to the time for the completion beyond stating that the completion was to take place on 30th September 1991. The stipulation as to the completion before 5:00 pm was not referred to in the undertaking letter nor incorporated into the undertaking letter. Mr Kotewall submitted that the authors of the correspondence were professionals and, if they intended that the completion was to take place at 5:00 pm, they could have easily stipulated the completion time in the correspondence. Mr Kotewall submitted that in the absence of a specific time for the completion of the sale, the Purchaser was entitled to rely on the mid-night rule and have until mid-night of 30th September 1991 to tender the balance of the purchase money. In Afovos Shipping Company S.A. v. Pagnan [1983]1 WLR 195, Lord Hailsam stated that :-

"One may only ask the question in the simpler form : 'what is the latest point of time on 14th June 1979 which would have constituted punctual payment of the instalment?' To this question, I believe that, in principle, only one answer is possible, namely at mid-night on the last day available to them for the due and punctual payment of the hire, i.e. 14th June. I take it to be a general principle of law not requiring authority that where a person under an obligation to do a particular act has to do it on or before a particular day he has the whole of that day to perform his duty. No doubt as to the hours pass it becomes less and less probable that he would be able to do it. That is the risk he runs. But he is not actually in default until the time arrives."

This approach was applied in Hong Kong in Camberra Investment Limited v. Chan Wai Tak [1989]1 HKLR 568. Hunter J.A. at p. 573 held that :-

"I cannot agree that the application of the mid-night rule would lead to any such extravagant consequences to Hong Kong solicitors, any more than it has done to bankers since the decision in Afovos."

20. In paragraph 9 of the Re-re-re-amended Statement of Claim, it was pleaded that :-

"In the premises, there was an Agreement between the Plaintiff and the Defendant that the sale was to be completed by way of solicitors' undertaking in accordance with the practice approved and sanctioned by the Law Society of Hong Kong and in accordance with the practice of conveyancing solicitors in Hong Kong. Consequently, the requirements for formal completion of the sale were dispensed with and the provisions regarding formal completion of sale as set out under Clause 3 of the Agreement were waived, or alternatively varied."

21. The Purchaser has not called any evidence regarding the conveyancing practice in Hong Kong, thus the question as to the time for the completion of the sale is one of the construction of the documents. There is no decided authority on this point. In Ip Ming Wai, it was argued by the purchasers that although the contract provided for the completion of the sale at 5:00 pm, the parties had subsequently agreed to complete by way of undertakings; the purchaser's cheque tendered at 5:00 pm could not possibly have been cleared to enable the mortgagee to discharge the mortgage, to enable the vendor to assign the property free from incumbrances to the purchaser by 5:00 pm and thus by implication, the deadline of 5:00 pm was relaxed. The mid-night rule was not relied upon in that case. The Court of Appeal, however, ruled that this point was not open to the purchaser because it was based on an entirely new case which was neither pleaded in the statement of claim nor argued in the court below.

22. In the present case, although the mid-night rule was not expressly pleaded, the Purchaser by paragraph 9 had expressly pleaded that the completion time of 5:00 pm was waived or varied by the subsequent Agreement to complete by way of undertaking.

23. It is plain from the evidence of Miss Chow and Miss Tin, that both of them were working towards the 5:00 pm deadline. Mr Kotewall, however, argued that if the matter is simply one of construction of the agreement then the parties' intention, assumption, expectation or hope has anything to do with the question of construction.

24. In my view, as a matter of construction of the undertaking letter, the stipulation as to the completion by 5:00 pm was not waived or varied by the agreement to complete by undertakings.

25. Both parties have referred to the Law Society Circular No.91 of 1982 which deals with completion of conveyancing transactions by way of solicitors' undertaking. Paragraphs 12 and 13 of the circular stated that :-

"12. It will be assumed that completion would take place by way of undertaking unless the solicitors concerned notify the other side in good time that standard undertakings will not apply and that formal completion is required. In all the cases, the right to require formal completion remains, but in such event, as a matter of professional courtesy, a solicitor should use every endeavour to give at least three working days notice before the date fixed for the completion."

"13. In future, the usual time limit between the receipt of the consideration money and delivery of duly executed documents would be as follows :

(a) where only two solicitors' firms are involved, the period is 21 days.

(b) ...... "

The Law Society prepared two sets of standard forms of undertakings for the use of the solicitors. One of which was used in the present case. The standard form undertaking refers to the date of the completion but did not specify the time of the completion.

26. Although Mr Kotewall submitted that the intention or assumption of the parties were not important, what is significant is that both parties had intended to complete by 5:00 pm and they had not assumed otherwise in this transaction. I agree with Sir John Swaine, leading counsel for the Vendor that the arrangement for the completion by undertaking does not affect the time of the completion. The undertaking only relate to the Vendor's obligation to execute an assignment free from incumbrances. The object of the undertaking was not to have a physical completion but rather to enable the Vendor to execute the documents and to secure releases and arrange for delivery of documents within 21 days. It did not affect the contractual stipulation as to the payment of the purchase money. The conveyancing solicitors in Hong Kong would indeed be surprised if by virtue of adoption of the completion by undertaking, the stipulation as to time was thereby affected as well.

27. In my view, the undertaking letter must be read together with the contractual stipulation as to the time for the completion of the sale. Although Clause 29 of the Agreement provided that the word "day" shall mean calendar day, this construction is clearly stated to be subject to contrary intention. The contrary intention appeared in the Agreement because the parties agreed that the completion was to take place at 5:00 pm. The standard form undertaking refers only to day and not time and it is difficult to construe that by using the standard form, there could be a variation to time as well. Regarding the undertaking letter of 30th September 1991 which referred to the completion date of 30th September 1991, it is more natural to read it as meaning the completion date "as agreed" rather than "as varied".

28. I am not satisfied that the mid-night rule would apply and that the Purchaser had until mid-night to tender the purchase money. In the circumstance, I rule that the Purchaser was required to pay the balance of the purchase money before 5:00 pm. It had failed to do so and, subject to the question of relief against forfeiture, the Vendor had properly rescinded the Agreement and forfeited the deposit.

Relief against forfeiture of the Purchaser's interest in the Property

29. The Purchaser is seeking specific performance of the Agreement. In order to do so, it must seek relief against forfeiture of its interest in the property. When the Purchaser executed the Agreement and paid the deposit, the beneficial ownership of the land passed to it subject to the payment of the purchase price. As the Vendor had rescinded the contract, the Purchaser's interest in the property had been forfeited.

Privy Council Authorities

30. In Kilmer v. British Columbia Orchard Land Limited (1930) AC 319, an agreement for sale provided that instalments of purchase money were to be paid on specific dates and declared time to be of the essence of the contract; in default of punctual payment of any instalment, the agreement was to be null and void and all payments made under it were to be forfeited to the vendor. Default having been made, the vendor sued for a declaration that the agreement for sale was null and void. The purchaser counterclaimed for specific performance. The trial judge dismissed the action and decreed specific performance on the counterclaim. The Privy Council restored the decision of the trial judge. Lord Moulton approved of the decision of In re Dagenham (Thames) Dock Company, ex parte Hulse L.R.8 Ch.1022 in which Mellish L.J. held that :-

"I have always understood that where there is a stipulation that if on a certain date an agreement remains either wholly or in part unperformed - in which case, the real damage may be either very large or very trifling - there is to be a certain forfeiture incurred, that stipulation is to be treated as in the nature of a penalty."

In Dagenham, it was held that the purchaser was entitled to be relieved on payment of the balance of the purchase price with interest.

31. Subsequent decisions of the Privy Council took a different approach. In Steedman v. Drinkle [1916]1 AC 275, the contract provided that if the purchaser should make default in any of the payments to be made, the vendor should be at liberty to cancel the agreement and retain any payment made under it. It also provided that time was to be of the essence of the agreement. The defaulting purchaser claimed specific performance and alternatively relief against forfeiture. The Privy Council held at p.279 that "the stipulation in question was one for a penalty against which relief should be given on proper terms" but that there was no justification for the decreeting specific performance. At p.279 Lord Haldane held that :-

"Courts of equity, which look at the substance as distinguished from the letter of agreements, no doubt exercise an extensive jurisdiction which enables them to decree specific performance in cases where justice requires it, even though literal terms of stipulations as to time have not been observed. But they never exercise this jurisdiction where the parties have expressly intimated in their agreement that it is not to apply by providing that time is to be of the essence of their bargain."

32. Lord Haldane explained the decision of Kilmer by saying that the case proceeded on the basis that the date of payment of the instalment which was not paid had been extended so that the stipulation had not been insisted on by the vendor.

33. In Brickles v. Snell [1916] AC 599, the purchaser under an agreement for the sale of land, which made time of the essence, was in default at the date fixed for the completion, and the vendor cancelled the agreement. The Privy Council followed Steedman and held that the purchaser being in default was not entitled to specific performance.

The Australian approach

34. In Legione & Another v. Hateley [1982 - 1983]152 CLR 406, the High Court of Australia chose not to follow the Steedman and Brickles approach. It held that the court had jurisdiction to relieve a defaulting purchaser against forfeiture of his interest in the land even where he had failed to comply with a condition of which time was of the essence. Gibbs C.J. and Murphy J. held at p.429 that :-

"A court of equity will grant specific performance notwithstanding a failure to make a payment within the time specified by the contract if there is nothing to render such an order inequitable. The fact that time for the performance of the stipulated obligation is of the essence of the contract generally makes the grant of specific performance inequitable in such a case. However, if it is just to relieve against the forfeiture which is incurred when the vendor retains payments already made under the contract, it is difficult to see why it should be unjust to relieve the purchaser against the forfeiture of the interest in the property that results in exactly the same circumstances. No doubt where the parties have chosen to make time of the essence of the contract, the grant of relief against forfeiture as a preliminary to an order for specific performance will be exceptional. Nevertheless on principle we can see no reason why such an order should not be made if it will not cause injustice but will on the contrary prevent injustice. If relief against the forfeiture is granted, the objection to the grant of specific performance is removed."

They held that the circumstances of the case showed that it would be unjust for the vendors to insist on the forfeiture of the purchasers' interest in the land. Important among those circumstances was the fact that the purchasers had erected on the land a house of considerable value and if the contract was rescinded, the vendor would receive an ill-merited windfall. Further, there were the facts that the purchase money were tendered only four days after the notice expired, and that the late payment was explained by the terms of the letter from the vendor's solicitor. The breach by the purchaser was neither wilful nor apparently serious. To enforce the legal rights of the vendor in these circumstances would be to exact a harsh and excessive penalty for a comparatively trivial breach.

35. Mason J. and Deane J. at p.444 stated that :-

"There is more to be said for the view than when the equitable jurisdiction is invoked to relieve against a forfeiture which is not in the nature of a penalty, equity looks to unconscionable conduct, as Farwell J. indicated in Mussen's case (1938) Ch.263, in the passage already quoted, especially when unconscionable conduct is associated with fraud, mistake, accident or surprise."

At p.447 they further held that :-

"If parties expressly or impliedly stipulate their performance of a term is essential to their bargain then it would ordinarily be unjust to the innocent party to require him to complete notwithstanding a breach of that term."

"But if there be fraud, mistake, accident, surprise or some other element which will make it unconscionable or inequitable to insist on forfeiture of the purchaser's interest under the contract because he has not performed in strict accordance with his terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation."

36. While Gibbs C.J. and Murphy J. held that the decisions of the Privy Council did not provide satisfactory authority on the issue, Mason J. and Deane J. attempted to explain the rationale behind the decisions of Steedman and Brickles. At p.448, they said that the Judicial Committee,

"... gave more weight to the value of enforcing contracts according to their strict terms and less attention to the fundamental principle which underlies the exercise of the equitable jurisdiction to relief against forfeiture than we are disposed to give them. That the Judicial Committee did so is readily understandable because in the early part of this century, overriding importance attach to the concept of freedom of contract and to the need to hold parties to their bargains. These considerations, though still important, should not be allowed to override competing claims based on long-standing heads of justice and equity. The result of the two decisions was to enunciate an inflexible rule that specific performance will never be granted where there is a breach of an essential condition, thereby diminishing the utility of the remedy in cases of relief against forfeiture. A preferable course is to adjust the availability of the remedy so that it becomes an effective instrument in situations in which it is necessary to relieve against forfeiture of the purchaser's interest under a contract for sale. The rule would then be expressed by saying that it is only in exceptional circumstances that specific performance will be granted at the instance of a purchaser who is in breach of an essential condition."

"Whether the exceptional circumstances exist in a given case hinges on the existence of unconscionable conduct. It is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale. Nonetheless it may be said that where the conduct of the vendor, though not creating an estoppel or waiver, has effectively caused or contributed to the purchaser's breach of contract, there is ground for exercising the jurisdiction to relieve. And if it also appears that the object of the recission is not to safeguard the vendor from adverse consequences which he may suffer as a result of the contract remaining on foot, but merely to take unconscientious advantage of the benefit which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract, there will be even stronger ground for the exercise of the jurisdiction."

37. This decision was followed subsequently in Stern & Another v. McArthur & Another [1988]165 CLR 489. Deane J. and Dawson J. at p.527 commented on Legione :-

"We do not understand there to be any significant difference between these two approaches. Moreover in referring to unconscionable conduct, Mason and Deane J.J. were not saying that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, what was being said was that a court will be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract. The circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable ? or, more accurately, unconscientious ? conduct."

38. Mason C.J. who gave the dissenting judgment held at p.503 that :-

"The doctrine is a limited one that operates only where the vendor has come up by his conduct, caused or contributed to a situation in which it would be unconscionable on the vendor's part to insist on the forfeiture of the purchaser's interest."

39. Mr Kotewall further referred me to two Australian cases reported in the Australian Current Law. In Dillon v. Bepuri Pty Ltd (Supreme Court, NSW, Cohen J., 4th October 1988) it was held, inter alia, that it may be unconscionable for a vendor to retain a windfall profit where there has been no wilful default by the purchaser, the delay in being ready for completion is slight, there would be no loss to the vendor in completing when the purchaser was able to do so and the purchaser would suffer a substantial loss by the recission.

40. In Tang v. Chong (Supreme Court, NSW, Young J., 1st December 1988), it was held, inter alia, that it would be unconscionable for the vendor to retain the windfall profit brought about by the purchaser's non-compliance with his own notice to complete which non-compliance on the evidence occurred because of the illness of his solicitor.

Hong Kong Law

41. The Privy Council decision in Steedman and Brickles is binding in Hong Kong. The Privy Council has not considered the Australian cases or has it overruled the Steedman and Brickles line of authorities.

42. In Hong Kong, it has been assumed without argument that the Australian authorities would apply.

43. In Gladfow Ltd v. Grand Land Development Ltd [1993]2 HKLR 494, Godfrey J. (as he then was) followed Steedman and held at p.401 that :-

"Although it is open to the Court to grant specific performance if the justice of the case requires it, even though the literal terms of a stipulation as to time have not been observed, it has been said that the Court will 'never exercise this jurisdiction where the parties have expressly indicated in the bargain that it is not to apply by providing that time is to be of the essence of the bargain.'"

At p.502, he referred to Legione and Stern and described them to be "controversial decisions". On the facts of the case, he was not prepared to held that the vendor's conduct could be characterised as unconscionable and he held that the Australian authorities were of no help to the purchaser.

44. In Wong Kwok Yan v. Lee Kenny and Another (CA151 of 1993) the Court of Appeal adopted Legione and Stern. Macdougall V.P. held that on the facts of the case, the vendor's insistence on termination of the contract and forfeiture of the purchaser's initial deposit was unconscionable, and that it would be inequitable to deny the purchaser relief.

45. In Silverpole Limited v. China Pride Investment Limited (CA No.62 of 1994), Godfrey J.A. at p.16 of the judgment referred to the wider rule of equity in Legione and Stern that if in any particular case it was unconscionable conduct on the part of the vendor, given all the circumstances for the vendor to have called off the contract and forfeited the purchaser's deposit, the purchaser may be granted relief from forfeiture.

46. In Dawson Enterprises Ltd v. Talisteam Ltd, MP No.790 of 1994, the Australian cases were also relied upon by the purchaser. Barnett J. held at p.15 that :-

"Compelling though the arguments are and attractive though the result might be in those cases, like Godfrey J., I see no reason to depart from the authority of the Privy Council contained in Steedman v. Drinkle [1916] AC275."

47. Yam J. in Lai Kam Hon v. Wong Lun Hing (HC No.A131 of 1991) also referred to the judgments of Gibbs C.J. and Murphy J. in Legione.

Should relieve be granted?

48. Mr Kotewall argued that the power to relieve will apply where the forfeiture clause is in the nature of a penalty. He submitted that Clause 12 is in the form of a penalty clause, even if Clause 12 is not in the nature of penalty, on the authority of the Australian cases, the Court, nonetheless still has a power to grant relief.

49. Sir John Swaine submitted that the Privy Council decision in Steedman is the binding authority on this Court. He argued that, if, however, the Australian approach is to apply, which is not conceded by him, there is no exceptional circumstances in this case which would justify relieve against the forfeiture of the interest of the Purchaser. The only sum paid by the Purchaser under the Agreement was 10% which was the conventional deposit. 42 days were provided for the completion of the sale, ie. from 19th July 1991 which was the day when the Provisional Agreement was signed to 30th September 1991. There was no evidence as to the state of the market at that time. The Purchaser's interest in the land was "inchoate" and conditional upon payment of the balance of the purchase price. It was not entitled to possession until payment of the purchase price in full. This is unlike the situation in Legione where the purchasers were entitled to possession on payment of the deposit and where they had built a house of considerable value on the land and the vendor would have received an "ill-merited" windfall on recission. Thus unlike Legione, the loss to the Purchaser is not disproportionate to the breach. In truth, the loss to the Purchaser is the 10% conventional deposit designed to secure performance of the contract. The only material fact pleaded in support of the relief is under paragraph 13 of the Re-re-re-amended Statement of Claim in which it was said that the 10 minutes delay was very slight and should be disregarded. However, as time was of the essence, the breach was complete once 5:00 pm had passed. If the length of the delay is relevant, which is not conceded by the Vendor, then it is one small factor which does not bring the Vendor's case within the exceptional circumstances.

50. In the present case, the parties have made time to be the essence of the agreement and on the authority of Steedman and Brickles relieve should not granted. However, even if the court has the power to relieve under the Australian approach, I still consider that it is not a proper case to grant the relief.

51. Mason J. and Deane J. in Legione posed five questions to be considered. They are :

1. Did the conduct of the vendor contribute to the purchaser's breach?

2. Was the purchaser' breach a) trivial or slight and b) inadvertent and not wilful?

3. What damage or other adverse consequence did the vendor suffer by reason of the purchaser's breach?

4. What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand?

5. Is specific performance with or without compensation an adequate safeguard for the vendor?

52. In regard to the first question, the Vendor's conduct certainly had not contributed to the Purchaser's breach. On the contrary, I accept the evidence of Miss Chow that she had in the morning of the day of completion reminded the Purchaser's solicitors that they should tender the payment before 5:00 pm.

53. In regard to the second question, no doubt the payment was made 10 minutes late, however the Plaintiff had called no evidence regarding the reason for the delay. The Court is unable to tell whether the delay was due to inadvertence or not wilful. Lord Wilberforce in Shiloh Spinners Ltd v. Harding [1973] AC 691 at p.722 stated that :-

"Secondly, there were the heads of fraud, accident, mistake, or surprise, always a ground for equity's intervention, the inclusion of which entail the exclusion of mere inadvertence and a fortiori of wilful default."

54. In regard to the third question, there is of course no evidence as to the damage or adverse consequence of the Vendor by reason of the Purchaser's breach.

55. For the fourth question, the magnitude of the Purchaser's loss was the sum of 10% which was the conventional deposit. Mr Lau Kwok Hing, a solicitor of 17 years standing and engaged in conveyancing practice has testified that in Hong Kong it is usual and customary to pay a deposit of 10% of the purchase price. In regard to the Vendor's gain, there is no evidence on the market price of the property between the day of the Provisional Agreement and the day of the completion. Mr Kotewall argued that the Vendor acquired the property in March 1991, for about HK$2,800,000.00 whereas it managed to sell the property to the Purchaser in August 1991 for HK$4,200,000.00, namely a 50% increase in less than five months. It should be pointed out that although the assignment to the Vendor was made in March 1991, it actually purchased the property in November 1989. There was an equitable mortgage to secure loan credit facilities in the sum of HK$2,500,000.00. Sir John Swaine drew my attention to the fact that there was a downturn in the property market in Hong Kong after 4th June 1989.

56. In Stern, Gaudron J. held that the actions of the vendor in bringing the forfeiture clause into operation and insisting on their strict contractual rights as conferred by that clause amounted to unconscionable conduct. The facts of Stern is again vastly different from the present case. At the time the forfeiture clause was brought into operation, the contract had been on foot for ten years, a house had been erected on the land and had become the home of the wife of the purchaser. The land had appreciated in value, the balance purchase price was a relatively insignificant amount and the total of instalments already paid greatly exceeded the amount then outstanding. The vendors had a choice as to whether they would seek specific performance which would secure all for which they had contracted or whether they would take steps to terminate the contract and to enforce the consequential rights provided in Clause 15 of the contract. They chose to resell the property when there was no prospect of any deficiency which may arise on resale. The only prospect was one of considerable profit accruing by reason of the increased value of the land. Gaudron J. held that insistence of this right, involving the loss to the wife of the purchaser of her home, the loss to the purchaser of the interest under the contract, the forfeiture of the deposit and the indefinite retention of the instalments already paid, so long as an action for damages was commenced within 12 months of termination, when a decree of specific performance would secure all that the Vendor had contracted for was unconscionable.

57. The facts of this case are miles apart from the situations in Legione and Stern. The Vendor in the present case could not said to have received an ill-merited gain. The only circumstances that may be said to be relevant is that the purchase money was tendered 10 minutes after the stipulated time. However, this cannot be said to be exceptional or that the conducts of the Vendor are unconscionable. The point is where does one draw the line between 10 minutes or say, half an hour. It is pertinent to refer to Stockloser v. Johnson [1954]1 QB 476 in which Romer L.J. held at 501 that :-

"In my judgment, there is no sufficient ground for interfering with the contractual rights of a vendor under forfeiture clauses of the nature which are now under consideration, while the contract is still subsisting, beyond giving a purchaser who is in default, but who is able and willing to proceed with the contract, a further opportunity of doing so; and no relief of any other nature can properly be given, in the absence of some special circumstances such as fraud, sharp-practice or other unconscionable conduct of the vendor, to a purchaser after the vendor has rescinded the contract." (emphasis added)

The Agreement has been rescinded and there is no special circumstances which can be described as fraud, sharp practice or other unconscionable conduct of the Vendor. In the absence of such factors, I am not satisfied that I should grant relief against forfeiture of the purchaser's interest or decree specific performance of the Agreement.

Relief against forfeiture of the 10% deposit

58. The Plaintiff is also seeking relief against forfeiture of the 10% deposit in its pleading. In its final submission, Mr Kotewall, however, without conceding the point preferred to reserve his position. He submitted that he would have argued that:-

1. The deposit which is part of the penal provision is itself tainted.

2. If a sum has to perform a double duty, namely as a deposit and as a liquidated damage, then it could not be a true deposit.

3. Where two sums are in question, the subsequent sum cannot be a genuine guarantee and must be a instalment of the purchase price.

In the present case, two sums were paid by way of deposit, HK$100,000 was the initial deposit and the sum of HK$320,000 was the further deposit.

59. In Dawson Enterprises Ltd v. Talisteam Ltd (MP No.790 of 1994), Barnett J. construed Condition 10 of Part A of the Second Schedule to the Conveyancing and Property Ordinance. Condition 10 is the same as Clause 12 in this Agreement. Barnett J. held that :-

"By Condition 10 the parties have, in my view, agreed to treat the deposit as a provision for liquidated damages. Or, at least there has been attempt, deprecated by Lord Brown-Wilkinson, to avoid problems which were apprehended might arise in relation to a mere deposit by labelling it as liquidated damages. That being so, the sum paid must represent a genuine pre-estimate of loss. There is understandably no evidence whatsoever on this point. The parties simply adopted the conventional 10% of the purchase price, neither they nor their legal advisers (again understandably) having given any thought to the distinction between a deposit and provision for liquidated damages, and the need in the latter case to try and pre-estimate the loss consequent upon breach of contract."

60. In Cheer King Investments Limited v. Rich Glory Investment Limited, HCA 9497 of 1994, I came to the view that in respect of the 10% deposit in the forfeiture clause, even if there is no evidence to show that it is a genuine pre-estimate of loss, it still does not mean that the Defendant is not entitled to forfeit this sum. I based my decision on the Privy Council decision of Workers Trust Bank Limited v. Dojap Limited [1993] AC 573 in which Lord Brown-Wilkinson held that :-

"Ancient law has established that the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract."

I further drew assistance from the Court of Appeal decision in Silverpole Limited v. China Bright Investment Limited in which Godfrey J.A. held that:-

"It is clear that if the fixed sum does not exceed a conventional size (e.g. 10% of the purchase price in sales of residential premises in England and Wales), the Court will not treat a provision for its forfeiture as penal, even if it is in no way represents a genuine pre-estimate of the vendor's loss."

I maintain my earlier view in this case and further support of this view can be gathered from the Privy Council decision of Linggi Plantations Ltd v. Jagatheesan (1972)1 MLJ 89 in which Lord Hailsham stated that :

"But there is nothing unusual or extortionate in a 10% deposit on a contract for the sale of land...."

In Ng Chek Kok v. Kiu Wai Ming [1992]1 HKLR 5, the purchasers were required to pay two sums of money described respectively as a initial deposit and a further deposit. In Clause 10, a forfeiture of the deposit money under that clause was expressed to be "as liquidated damages (and not as penalty)". At p.16 Clough J.A. held that :-

"Where however a vendor exercises a right to forfeit a deposit (which is an earnest of the performance of the contract by the purchaser) upon the default of a purchaser, the forfeiture is not a penalty and its retention has been said to be liquidated damages."

At p.17 he further held that :-

"It seems to us that the true nature of these payments, which amounted to 10% of the total purchase price, was that of ordinarily deposits payable as an earnest of due performance of its contract by the purchaser."

Conclusion

61. The Plaintiff has failed in its action. I must dismiss its action accordingly with costs nisi to the Defendant.