LAU SUK CHING PEGGY v. MA HING LAM AND OTHERS

FACV No. 25 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 25 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 360 OF 2006)

_____________________

_____________________

_____________________

J U D G M E N T

_____________________

Mr Justice Bokhary PJ :

1.  I agree with the judgment of Lord Millett NPJ. 

Mr Justice Chan PJ :

2.  I agree with the judgment of Lord Millett NPJ. 

Mr Justice Ribeiro PJ :

3.  I agree with the judgment of Lord Millett NPJ.

Mr Justice Mortimer NPJ :

4.  I agree with the judgment of Lord Millett NPJ.

Lord Millett NPJ :

Introduction

5.  The appellant (“the Plaintiff”) is the plaintiff in an action which was originally brought for specific performance of a contract for the purchase of shares but has become an action for damages for breach of contract.  She appeals from the judgment of the Court of Appeal (Rogers VP, Kwan and Wright JJ) dismissing her appeal from a judgment of Mr Recorder A Chan SC and allowing a cross-appeal by the defendants, with the result that her action was dismissed.

The facts

(1) The Minutes

6.  The facts are set out in the judgment of the Recorder and can be summarised as follows.  In 2003 the Plaintiff provided financial consultancy services to the First and Second Defendants (“Ma” and “Kingsway” respectively and together “the Vendors”).  This led to the contemplation of a long-term business relationship, but relations soon soured, and the parties sought to resolve their differences with a view to a parting of the ways.  The terms of separation were agreed and recorded in Chinese in Minutes (“the Minutes”) dated 11 May 2004.

7.  Paragraph 3 of the Minutes was concerned with a flat (“the flat”) in Happy Valley.  The Plaintiff had previously entered into a contract with a third party to buy the flat but had insufficient funds to complete the purchase and had persuaded the Vendors to buy it in her place.  They formed the Third Defendant (“the company”) as a wholly owned subsidiary of Kingsway[1] to acquire it.  At the time of the Minutes the flat was the company’s only asset.  Kingsway had charged its assets to secure its bank borrowings, which included but were not confined to the purchase money for the flat.  It is not clear whether the charge extended to the flat as well as its shareholding in the company.  The flat was occupied by the Plaintiff, who was anxious to acquire it now that the parties’ relationship had come to an end.  

(2) The Option

8.  Accordingly it was agreed that the Plaintiff should be granted an option to purchase the flat, either directly from the company or indirectly by acquiring the company’s shares from the Vendors.  The option was contained in para.3 of the Minutes which (as translated into English) was in the following terms:

“3. The parties present at the meeting had previously and unanimously agreed that the property held by Multi Capital Ltd, namely, Flat 1, 27^th Floor, Block 3, Winfield Building and Carpark No. D9 (‘Property A’), should be continued to be held by Multi Capital Ltd.  However, the parties present at the meeting and Party D all agreed to grant to Party B-an option (option), so as to enable Party B and/or her nominee to purchase Property A on or before 28^th September 2004 at the price of HK$8,905,282 (see Annexure 1).  The purchase may be carried out in the form of sale and purchase of the company.  If Party B fails or is unable to exercise her option on or before that day, then Party B should be deemed to have relinquished the option.”

9.  Party A was Ma, who was recorded in the Minutes as also representing Kingsway; Party B was the Plaintiff, and Party D was Kingsway.  Annexure I was in English.  It explained how the purchase price of HK$8,905,282 was made up.  It consisted of the sum of HK$8,300,000, being the price which the company had paid to acquire the flat, to which were added disbursements such as interest and legal fees incurred or to be incurred and calculated up to 28 September 2004.

10.  A number of observations may be made on the Minutes.  First, they were drafted by the parties themselves without legal assistance.  Secondly, they did not contain two alternative options, one to buy the flat from the company and the other to buy the shares in the company from the Vendors.  The whole purpose of the option was to give the Plaintiff the right to acquire the flat.  Accordingly para.3 granted a single option to buy the flat, though this might be effected, at the Plaintiff’s election, either by a purchase of the flat from the company or of the company’s shares from the Vendors.  The parties’ agreement that the flat should continue to be held by the company, recorded in para.3 of the Minutes, was a necessary protection for the Plaintiff.  It prevented the Vendors, who were the sole shareholders in the company, from procuring it to dispose of the flat to a third party without the Plaintiff’s consent if she gave up her right to buy the flat and elected to purchase the shares instead.  Thirdly, whether or not Ma should be treated as signing the Minutes as the company’s agent, it was controlled by the Vendors, so that they could make good title to the flat.  Fourthly, on exercising the option, and in the absence of any provision to the contrary, the Plaintiff was given the right to acquire the subject-matter of the option, whether the flat or the shares, free from incumbrances.

(3) The exercise of the option

11.  The Plaintiff never served a written notice exercising the option.  In late August or early September 2004, however, (as the Vendors admitted in their Re-amended Defence) she orally informed them that she would exercise the option; and on 15 September she caused her solicitor’s name card to be transmitted to Ma for the purpose of purchasing the shares.  In the course of a letter dated 22 September with which her solicitors opened the correspondence with the Vendors’ solicitors they wrote that she

“had notified your clients [of] her exercise of the option granted by your clients to her … for the purchase of the Company with the Property”

and concluded by stating

“We are also instructed to confirm again our client’s exercise of the said option.”

The Recorder found (and ultimately it was not disputed before him) that before 28 September 2004 the Plaintiff had given sufficient notice to exercise the option to purchase the shares.

(4) Subsequent correspondence

12.  In the same letter the Plaintiff’s solicitors asked the Vendors’ solicitors to prepare and deliver a draft agreement for the sale and purchase of the shares.  They also asked for a suggested date on or before which the sale and purchase should be completed.  The Recorder recognised that if, as he found, the option had been exercised, a binding contract for the sale and purchase of the shares had already been concluded, and it was not necessary for the parties to enter into a further agreement.  But the existing home-made contract left much to be agreed, and it was obviously sensible to replace it with a formal contract in which the completion date and the discharge of the company’s liabilities and other matters might be agreed.

13.  A lengthy exchange of correspondence between the parties’ respective solicitors followed, in which the Vendors’ solicitors prepared and sought agreement on the terms of a draft contract for sale.  The draft included a suggested completion date in October, though the calculation of the purchase price remained unchanged.

14.  28 September came and went without agreement, let alone completion.  On 30 September the Vendors’ solicitors wrote a letter marked “Subject to Contract” enclosing a revised draft contract for sale for the consideration of the Plaintiff’s solicitors.  The draft suggested a completion date of 8 November but again left the purchase price unchanged.  The Vendors’ solicitors assumed that the option had not been exercised and had already lapsed, but stated that their clients had agreed to extend the period for 8 days from 28 September.  If the Plaintiff did not execute a formal agreement for the purchase of the shares on or before 6 October, the option, they asserted, would lapse.

15.  There was further correspondence about the loss of the company’s seal and records and on the need for a deed of indemnity.  The Plaintiff’s solicitors asserted that she had exercised the option, and the Vendors’ solicitors denied this.

16.  On 15 October the Plaintiff’s solicitors wrote that if the latest version of the draft Agreement was acceptable to the Vendors their client would execute it within two working days and stated that she was ready willing and able to enter into a formal agreement and to complete the transaction.

17.  By a letter of the same date the Vendors’ solicitors repeated their previous contentions and stated that proposed amendments to the draft agreement would not be considered “as the option had lapsed”; and that as the Plaintiff had failed to enter into any agreement for the purchase of the shares by 6 October, no further extension of time would be granted.  The letter concluded

“Our client will not waste further time and costs in dealing with your client in the subject matter and hence, we will not respond to your further letters if they are related to the subject matter.”

18.  On 19 October, with commendable promptitude, the Plaintiff issued a writ for specific performance of the contract alleged to have resulted from her exercise of the option, with a claim for damages in the alternative.

The course of the proceedings below

19.  The Recorder accepted the Plaintiff’s case that she had exercised the option in time but refused to grant an order for specific performance because he found that she would not have been able to find the necessary funds to enable her to complete the purchase had the Vendors been willing to proceed with the sale on 19 October 2004 (the date when she issued the writ).  He found that the Vendors were in breach of contract by refusing to complete on 28 September 2004 or within a reasonable time thereafter but awarded only nominal damages of $10 for the same reason.

20.  Shortly before the hearing in the Court of Appeal, the company sold the flat for some $16 million.  Since the Plaintiff’s whole purpose in purchasing the shares was to acquire the flat, she saw no point in continuing to pursue her claim for specific performance.  Accordingly she abandoned that claim and elected for rescission of the contract and damages.  She put her claim at some $7.6 million, being the difference between the price at which the Vendors had sold the flat and the price which she had agreed to pay for the shares.

21.  The Court of Appeal held that the Plaintiff had not exercised the option because its exercise was conditional upon her payment of the purchase price before 28 September.  Accordingly it dismissed her appeal, allowed the Defendants’ cross-appeal and discharged the award of nominal damages.

The amicus curiae

22.  Since the Court of Appeal delivered judgment Kingsway has become insolvent.  All three Defendants are without means and are currently without representation.  Accordingly we appointed Mr Abraham Chan as an amicus curiae to assist us on the appeal.  We are much indebted to him for his erudite and wide-ranging submissions, both written and oral.  While being careful not to contend for a particular outcome, he has advanced for our consideration every argument which could properly be put forward on the Defendants’ behalf.

23.  The Defendants’ insolvency has the unfortunate result that the most which the Plaintiff is likely to be able to achieve in practice if she is successful in her appeal is the discharge of all orders for costs which have been made against her.      

The judgment at first instance

24.  The Recorder held:

(i)  Under the terms of para.3 of the Minutes, the sale and purchase of the shares had to be completed by concurrent performance on 28 September 2004;

(ii)  there was no agreement to extend the time for completion;

(iii)  both parties were in breach of their obligation to complete on the completion date, with the result that the contract remained on foot and completion was to be within a reasonable time after 28 September;

(iv)  it would have been reasonable to complete within a period of not less than three weeks from 28 September, that is by 19 October;

(v)  accordingly the Vendors were in breach of contract when (in his words) “they refused to complete” the transaction in accordance with the terms of the letter from the Plaintiff’s solicitors of 15 October; and

(vi)  although there was unchallenged evidence before the Recorder that the flat was worth about $12.5 million in October 2004 and that the Plaintiff was a financial consultant with experience and connections, she would not have been able to find the money to complete the purchase of the shares on 19 October had the Vendors been willing to proceed with the transaction.  Accordingly he refused her claim for specific performance and awarded her only nominal damages for breach of contract.

The construction issue

25.  The essential question of construction is whether

(i)  (as the Plaintiff contends) 28 September was the latest date by which she could give notice of her intention to purchase the shares, this being all that was needed to exercise the option;

(ii)  (as the Recorder held) this was the date for completion of the contract of sale and purchase by concurrent performance on the part of both parties to the contract which had been concluded by the earlier exercise of the option; or  

(iii)  (as the Court of Appeal held) payment of the purchase price was a condition precedent to the valid exercise of the option, with the result that the option had not been exercised and no contract concluded at all.

26.  Both the Recorder and the Court of Appeal construed the words “an option so as to enable [the Plaintiff] … to purchase [the flat] on or before 28 September” as meaning that the purchase had to be completed on or before 28 September.  This was because (as Rogers VP put it in the Court of Appeal)

“The option which is given is clearly an option to purchase.  Purchase is the transfer of property and not an agreement to transfer property.”

In other words, the Plaintiff had not only to exercise the option but also to complete the purchase of the shares by 28 September.  This was not a construction which the amicus found himself able to support.

27.  The Recorder recognised that completion requires concurrent performance by both parties, and accordingly held that notice exercising the option had to be given a reasonable time before 28 September in order to make it possible for the Vendors to complete on that date.  He implied a term to that effect, but found that it was satisfied.

28.  The trouble with the implied term is that it flies in the face of the express provision that the option should lapse if it was not exercised on or before 28 September.  The Plaintiff manifestly had until the last moment of that day to exercise the option.

29.  The Court of Appeal recognised that the option would not lapse until 28 September, and that accordingly the parties could not have contemplated concurrent performance by both parties on that date.  They considered that there should be no great delay between the exercise of the option and completion of the sale, whether of the flat or the shares, since all that was required of the Vendors was the execution and delivery of an assignment.  Accordingly the Court held that on its true construction para.3 of the Minutes dispensed with the need for concurrent performance by 28 September, but not with the Plaintiff’s obligation to perform her part of the bargain by paying the purchase money by that date.   Payment of the purchase price was therefore a condition precedent to the valid exercise of the option.  It was common ground that time was of the essence of the date for the exercise of the option, and since the Plaintiff had not paid the purchase price on or before 28 September she had failed to exercise the option.

30.  I have no doubt that the Court of Appeal was correct to dispense with the need for concurrent performance for the exercise of the option.  It is inherent in the nature of an option that it may be exercised by a unilateral act on the part of the grantee, and that its exercise should not depend on the co-operation of the grantor.

31.  In my opinion, however, both the Recorder and the Court of Appeal were wrong to construe the option as the grant of a right to become the purchaser of the flat or shares by completing the purchase (or the Plaintiff’s part in the purchase) on or before 28 September.  The critical words “so as to enable [the Plaintiff] to purchase” are merely descriptive of the nature of the option.  It is the grant of an option to purchase, not to sell or to take or renew a tenancy.  A person who enters into a binding contract or exercises an option to purchase property is regarded as the purchaser of the property from that moment even though he has not yet completed the purchase by paying the purchase price and taking an assignment.  The equitable interest in the property is vested in him, and as a matter of language that is sufficient to make him “the purchaser” and the contract a contract “to purchase”.

32.  If the words in question stood alone it might be difficult to know whether 28 September was the date by which the option was to be exercised or the date by which the purchase was to be completed.  But the concluding sentence of para.3 made it clear it was the date on which the option was to be exercised.  It could not sensibly also be the date on which the transaction was to be completed, since contrary to the view of the Vice-President completion was not a simple exercise, as the draft contracts exchanged between then parties’ respective solicitors showed.  The Vendors had not merely to execute share transfers and hand them over together with the share certificates but also to locate the missing seal and records of the company and obtain the discharge of all incumbrances on the shares or flat.

33.  In my judgment on the proper construction of para.3 of the Minutes the Plaintiff was granted an option to purchase the flat exercisable on or before 28 September.

34.  There remains the question whether, even so, the payment of the purchase price was a condition precedent for the valid exercise of the option.  It is well settled that the terms on which an option may be exercised must be strictly complied with, and that a payment may be required as a condition precedent to its exercise.  But there is no such express requirement in the present case, so that any such requirement must be implied.

35.  It is not uncommon for an option to purchase to require a purchaser to pay a deposit on exercising the option; but it would be most uncommon to require him to pay the whole of the purchase price before completion.  This is possible, of course, and if such payment is clearly and expressly made a condition precedent of the exercise of the option it will be given effect: see Weston v. Collins[2].  Such a provision, however, could not readily be implied.  Moreover, even where a payment at the time of exercising the option is required, it is a question of construction of the grant of the option whether the payment is a condition precedent to its valid exercise or merely a term of the contract of purchase which arises on its exercise[3].  In the former case, failure to make the payment will prevent the option from being validly exercised at all; in the latter case it will not.  This makes it very difficult to imply a term not only that a payment must be made on exercising the option but that such payment is a condition precedent to the exercise of the option.

36.  In support of the judgment of the Court of the Appeal (though not its reasoning) the amicus suggested a different ground for construing the Minutes as requiring the Plaintiff not only to give notice but also to pay the purchase price in order to exercise the option.  He pointed to the fact that the option would lapse if the Plaintiff “fails or is unable” to exercise the option on or before the due date. It was, he submitted, difficult to envisage circumstances in which the Plaintiff could be unable to exercise the option if all she had to do was to serve a notice of her intention to do so.  On the other hand, her inability to exercise the option was readily explicable if she was also required to make a substantial payment.

37.  I doubt whether the reference to the Plaintiff’s inability to exercise the option is capable of bearing the weight put on it by this submission.  But in any case I cannot accept it because it is all too easy to envisage circumstances in which the Plaintiff might be “unable” to exercise the option even if she was required to do no more than give notice.  If she left it too late, she might suffer a stroke or be involved in a road accident and be incapacitated or comatose at the critical period.

38.  Accordingly, I am satisfied that 28 September was the latest date by which the Plaintiff could give notice of her intention to purchase the shares, and that this was all that she was required to do in order to exercise the option.

The date for completion

39.  It follows that the Plaintiff validly exercised the option and that a binding contract was concluded for the sale and purchase of the flat.  It also follows that, since 28 September was not the date for completion, the contract contained no agreed completion date.  Contrary to the finding of the Recorder, neither party was in breach of contract by failing to complete on 28 September.

40.  The Recorder correctly held that where no date for completion is fixed by the contract the parties are obliged to complete within a reasonable time of the conclusion of the contract[4].  But I think that he may have misunderstood what this entails.  He seems to have considered that he was required to find what would have been a reasonable time for completion, thereby in effect fixing a completion date.  In my judgment not only was this unnecessary; it was something which he had no power to do.  Absent a term of the contract which permits it, or a breach of contract on the part of the other party, even a contracting party cannot unilaterally fix a date for completion where none is provided for by the contract; and the Court certainly cannot do what neither party can do.

41.  In a celebrated passage in Green v. Sevin[5]Fry J denied that either party can unilaterally fix a date for completion where the contract fixed none:

“What right then had one party to limit a particular time within which an act was to be done by the other?  It appears to me that he had no right so to do, unless there had been such delay on the part of the other contracting party as to render it fair that, if steps were not immediately taken to complete, the person giving the notice should be relieved from his contract.  It has been argued that there is a right in either party to a contract by notice so to engraft time as to make it of the essence of the contract where it has not originally been of the essence, independently of delay on the part of him to whom the notice is given.  In my view there is no such right.  It is plain upon principle, as it appears to me, that there can be no such right.  That which is not of the essence of the original contract is not to be made so by the volition of one of the parties, unless the other has done something which gives a right to the other to make it so.  You cannot make a new contract at the will of one of the contracting parties.  There must have been such improper conduct on the part of the other as to justify the rescission of the contract sub modo, that is, if a reasonable notice be not complied with.  That this is the law appears to me abundantly plain.”

42.  The steps necessary to fix a date for completion and to make time of the essence of the date are often provided for in special conditions of sale, but in their absence the procedure is now well established.  In Behzadi v. Shaftesbury Hotels Ltd[6] the English Court of Appeal held that it was necessary to distinguish between an open contract such as Green v. Sevin (and the present case) where no date for completion is fixed by the contract and the more normal case where a completion date is fixed but time is not of the essence of the date specified.  In the former case, the Court held, the law implies a term that the contract will be completed within a reasonable time from the date of the contract, and notice fixing a new completion date and making time of the essence of the date cannot be given until there has been an unreasonable delay, because it is only then that a breach of the contract will have occurred.  But in the latter case there is a breach directly the date fixed for completion has passed[7].  Overruling earlier English authority[8] and following Australian authorities, the Court held that a party could serve a notice fixing a new date for completion and making time of the essence of the new date immediately the original date for completion had passed[9].

43.  The Recorder was entitled to find, as he did, that a reasonable time had not expired by 15 October.  But he was not entitled to find that the Vendors were consequently in breach of contract by “refusing to complete the transaction” in accordance with the letter of that date from the Plaintiff’s solicitors.  Such a conclusion would be inconsistent with his finding that a reasonable time for completion had not yet expired; and would have the effect of treating the letter from the Plaintiff’s solicitors as fixing a date for completion and making time of the essence of that date when the contract itself had fixed none and a reasonable time for completion had not yet expired.

44.  But there is no doubt that the Vendors committed a repudiatory breach of contract by their letter of 15 October, and that the Plaintiff would have been entitled to treat the contract as at an end if she had been minded to do so.  This is not because the Vendors failed or refused to complete as requested by the letter from the Plaintiff’s solicitors, but because they denied the existence of the contract and thereby evinced an intention not to be bound by it.

45.  None of this, however, has any relevance to the issues which the Recorder had to decide.  The Vendors had committed a repudiatory breach of contract but the Plaintiff had not accepted it.  She had brought an action for specific performance and kept the contract alive for the benefit of both parties.

The claim for specific performance

46.  A plaintiff who seeks a decree of specific performance must show (i) that he has in the past performed or been ready to perform all the essential[10] terms and conditions of the contract to be then performed by him and (ii) that he is ready willing and able to perform all such terms and conditions thereafter to be performed by him[11].  In the present case the Plaintiff had not failed to do anything which the contract required her to do either at the date of the writ or at the date of the trial, so we are concerned only with the second requirement, which relates to obligations to be performed in future.

47.  It is not clear whether a party can accept a repudiatory breach on the part of the other and rescind the contract when it is not itself ready willing and able to perform its part of the contract[12].  There is first instance authority in England that he can[13] but the position in Australia is unclear as a consequence of the conflicting judgments in Foran v. Wight[14].  It is not necessary for us to decide this question, since the Plaintiff did not accept the Vendors’ repudiation but brought an action for specific performance.  It is merely necessary to remind ourselves when considering the various statements of law enunciated in Foran v. Wight[15] that the case concerned a purchaser’s claim for the recovery of the deposit, not specific performance or damages. 

48.  In the present case three questions arise: (i) what must a plaintiff who brings an action for specific performance be ready, willing and able to do?  (ii) at what date or dates must he demonstrate that he is or was ready, willing and able to do it? and (iii) what does this entail?

49.  On these questions the authorities (most of them of the High Court of Australia) are in agreement.  The plaintiff who brings an action for specific performance must, both at the date of the writ and the date of the decree, show that he is ready, willing and able to do at the proper time in the future whatever the contract requires him to do[16].

50.  In The King v. Poggioli[17], a decision of the High Court of Australia, Starke J referred to the fact that the plaintiff had not been willing to complete either at the time of action brought or at the time when the decree for specific performance was made by the court below.  In Mehmet v. Benson[18] Windeyer J said

“At the date when the suit is commenced the Plaintiff must then be in a position to say that he is ready and willing to do at the proper time in the future whatever in the events that have happened the contract requires that he do.”

In Green v. Sommerville[19] Barwick CJ said[20]

“It is a condition precedent to success in a purchaser’s action for specific performance that the purchaser should, at the institution of the suit, be ready and willing to perform the contract.”

51.  It hardly needs saying that it is not sufficient that the plaintiff was ready, willing and able to complete the transaction when he issued the writ if he does not remain so at the date of trial when he seeks a decree.  The Court will not make an order which is futile.

52.  What then is “the proper time in the future” when the plaintiff must be ready, willing and able to perform his part of the bargain?  This depends on the terms of the contract and the events which have happened.  In Psaltis v. Schultz[21] Dixon J said:

“To be ready and willing to perform a contract a party must not only be disposed to do the act promised but also have the capacity to do it.  But the tenor of the promise will show when and how the act is to be performed and it is to that time and mode of performance that the capacity and disposition to fulfil the promise are to be directed.  It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes,what the contract requires.”[22]

53.  Where the defendant has committed an anticipatory breach of contract and the plaintiff brings proceedings for specific performance before the date fixed by the contract for completion, this means that he must, at the date of the writ, be ready, willing and able to pay the purchase price on the day fixed by the contract for completion.  Where the date fixed for completion has passed and a party serves a valid notice on the other fixing a new date for completion and making time of the essence of that date, the notice binds both parties, and the party serving the notice will not be entitled to a decree of specific performance if he is not ready, willing and able to complete on the date specified in the notice[23].

54.   In the present case, however, no date was fixed by the contract for completion.  By bringing an action for specific performance, the Plaintiff asked the Court to order the Vendors to do whatever was necessary to transfer the shares to her free from incumbrances and (for the first time) to fix a date for completion.  There being no earlier date when the contract obliged her to perform her part of the bargain, she had to show that at the date of the writ she had been ready, willing and able to pay the price on the only date when she would have to do so, that is to say on whatever date the Court should fix for completion; and that at the trial she remained ready, willing and able to do so.

55.  The threshold which a plaintiff must surmount is not a high one: “he does not have to prove a great deal”[24].  As Dixon J said Psaltis v. Schultz in the passage previously cited[25]

“It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when thetime comes, what the contract requires.”[26]

In Rawson v. Hobbs[27]Dixon CJ cautioned against too lightly finding that a plaintiff had not been ready, willing and able to perform his contractual obligations.  He observed that one

“must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness”.[28]

56.  Accordingly the Recorder ought not to have enquired into the Plaintiff’s ability to find the purchase money on or shortly after 15 October 2004: she was never under any contractual obligation to do so.  He should instead have inquired whether at the date of the writ she was substantially incapacitated from completing or had determined not to complete at the then indeterminate time in the future when the court should fix a time for completion.  The answer being in the negative, he should have granted a decree of specific performance, inquired how long each of the parties reasonably required to complete, and fixed a date for completion accordingly.

57.  I should add, though the matter does not arise in the present case, that had she been obliged to complete on some earlier date, the Vendors’ refusal to complete dispensed with any need on her part either to tender the purchase price or to continue with her efforts to raise the money.  The letter of the Vendors’ solicitors of 15 October 2004 was the clearest possible intimation that it would be pointless for the Plaintiff to tender the money or, for that matter, to continue in her efforts to seek finance.  So long as that remained the position, the Plaintiff was not required to show “that she had, or was in a position to get, the money needed at completion”[29].

58.  There was unchallenged evidence that at the date of the writ the flat was worth $12.5 million.  The Plaintiff had some $400,000 of her own money to contribute to the purchase and had arranged a personal loan of some $500,000.  Moreover, the company had obtained a facility letter dated 19 October 2004 from GE Capital for a mortgage advance of $8.4 million on the security of the flat, and while the Recorder did not accept the Plaintiff’s evidence Ma had agreed with her that she could use the company’s name to obtain the loan[30] this was powerful evidence that she should have had little difficulty in obtaining a personal loan of a similar amount on the security of the company’s shares.  There was no reason to suppose that, given sufficient time, the Plaintiff could not have raised the necessary $8 million or so on the security of the flat, or that it would have taken her an unreasonably long time to do so.  She had not resolved not to proceed with the purchase, and was certainly not “substantially incapacitated” from doing so.  The Vendors’ refusal to complete or even enter into correspondence on the subject relieved her from any necessity to proceed with her efforts to raise finance.  She could not sensibly ask for a loan of $8 million when she could not tell the lender when if at all the money would be required.

59.  In my judgment, therefore, the Recorder was wrong to refuse a decree of specific performance.

The claim for damages

60.  Shortly before the hearing in the Court of Appeal, the flat was sold for $16.6 million.  The sale constituted a breach of the agreement recorded in the opening sentence of para.3 of the Minutes, and by putting it beyond the power of the Plaintiff to acquire the flat by purchasing the shares, constituted a repudiatory breach of the contract on the part of the Vendors.  The Plaintiff, who had not accepted the Vendors’ original repudiation, had no choice but to accept this one.

61.  Prima facie she was entitled to damages at common law for breach of contract.  The case is virtually the converse of Johnson v. Agnew[31].  In that case the contract fixed a date for completion, the purchaser failed to complete on that date or at all, and the vendors brought an action for specific performance.  They obtained a decree, but before the sale could be completed the vendors’ mortgagees sold the property.  This put it out of the vendors’ power to complete the sale, but their inability to do so was attributable to the earlier failure of the purchaser to complete the purchase, the purchase price being easily sufficient to discharge the mortgage.  The vendors then sought damages.  The English Court of Appeal awarded damages under Lord Cairns’ Act (damages in substitution for specific performance).  The House of Lords held (i) that it was a case for common law damages, not damages under Lord Cairns’ Act; (ii) that the measure of damages in the two cases was the same; (iii) that the breach of contract was the purchaser’s failure to complete on the date for completion fixed by the contract, notwithstanding that this was not a repudiatory breach since time was not of the essence of the date; and (iv) that although the general rule was that damages for breach of contract are assessed as at the date of breach, where a party brings an action for specific performance but elects (or is forced to elect) for damages they should be assessed at the date when the contract was lost. Damages therefore fell to be assessed at the date when the vendors’ mortgagees sold the property.

62.  Where a plaintiff who claims damages for breach of contract cannot show that he would have been ready willing and able to complete the contract if the defendant had not himself defaulted, he is entitled to only nominal damages.   We need not decide whether this is because the plaintiff fails to prove an essential ingredient of his cause of action or because he cannot show that the loss was caused by the defendant’s breach rather than his own[32].

63.  In Samsung Hong Kong Ltd v. Keen Time Trading Ltd[33] the Court of Appeal was concerned with a seller’s claim for damages for breach of a contract for the sale of goods by description.  The goods did not match the description, so that had the seller delivered the goods the defendant would have been entitled to reject them.  The plaintiff recovered only nominal damages.  This was because of the interaction of two principles: (i) damages for breach of contract are measured by the true value of the contractual rights which he has lost and (ii) a defendant is bound to perform his legal obligations and no more[34].  Since the defendant had a right to reject the goods, damages must be assessed on the footing that he would have exercised that right.

64.  In the present case, at the date when the contract was lost, the position was the same as it had been at trial: the Plaintiff had not failed to do anything which the contract required her to do, and she was not substantially incapacitated from completing her part of the bargain.  There is no reason to suppose that, had the flat not been sold, she would have had any difficulty in raising the necessary $8 million on the security of the shares, particularly when its only asset was a flat worth some $16 million and it had (or at least should have had) no significant liabilities. 

65.  In my opinion, therefore, the Plaintiff was entitled to an award of damages assessed as at the date when the flat was sold.  The measure of damages would be the difference between the market value of the flat represented by the price at which it was sold by the Vendors, i.e. $16,600,000 and the price which the Plaintiff was obliged to pay to purchase the shares of the company which held the flat, that is, $8,905,282.33 (of which $400,000 is to be credited to the Plaintiff as the amount of initial deposit she had paid when the flat was first acquired).  The Plaintiff is thus entitled to damages in the sum of $8,094,717.67.  She is also entitled to interest on this sum at 1% over the prime rate from the date when the flat was sold in October 2007 and the date of this judgment and thereafter at judgment rate until payment.

66.  I would allow the appeal.  The Plaintiff should have her costs here and in the courts below.

Mr Justice Bokhary PJ :

67.  The Court unanimously allows the appeal in the terms set out in the last two paragraphs of the judgment of Lord Millett NPJ.

[1]  Kingsway held 99% of shares in the company and Ma the remaining 1%.  Ma and the Plaintiff were the sole directors of Kingsway.  The Purchaser was removed as a director in November 2004.

[2]  (1865) 34 LJ Ch 353.

[3]  See Millichamp v. Jones[1982] 1 WLR 1422, where an express provision that upon the exercise of the option the purchasers should pay a deposit was held not to create a condition precedent to the valid exercise of the option.

[4]  See Behzadi v. Shaftesbury Hotels Ltd[1992] Ch 1 (CA) at p.12.

[5]  (1879) 13 Ch D 589 at p.599.

[6]  Supra note 4.

[7]  Raineri v. Miles[1981] AC 1050.

[8]  Particularly Smith v. Hamilton[1951] Ch 174.

[9]  Such a notice must give a reasonable time for the other party to complete.  If the notice is too short, it will be ineffective.  In Green v. Sevin (supra) a three week notice given by the vendor to the purchaser was insufficient.

[10] Failure to comply with a non-essential term will not bar his claim, especially if it can be compensated by an award of interest: see Mehmet v. Benson(1965) 113 CLR 295. 

[11] See Fry on Specific Performance (1921) 6^th Edn p.435.

[12] This must be judged at the date of the defendant’s breach.

[13] Rightside Properties Ltd v. Gray[1975] Ch 72 (Walton J).

[14] (1989) 168 CLR 385.  The majority (Brennan, Deane and Dawson JJ) held that the contract was at an end and the purchaser could recover his deposit in an action for restitution based on a total failure of consideration.  But he could not recover damages since he could not prove that the loss was attributable to the vendor’s breach rather than his own.  Mason CJ held that he could not recover damages because his own failure to show that he would have completed but for the other’s breach went to his cause of action and not merely to the assessment of damages.

[15] (Supra).

[16] Mehmet v. Benson (1965) 113 CLR 295 at p.314 per Windeyer J.

[17] (1923) 32 CLR 222, 250.

[18] See note 16 supra.

[19] (1979) 141 CLR 594.

[20] At p.600.

[21] (1948) 76 CLR 547 at p.560.

[22] To the same effect is Rawson v. Hobbs(1961) 107 CLR 466 per Dixon CJ at p.481.

[23] Finkielkraut v. Monohan [1949] 2 All ER 234; Quadrangle Development v. Jenner[1974] 1 WLR 68.

[24] See Foran v. Wight(supra) at p.452 per Dawson J.

[25] Note 21.

[26] To the same effect is Rawson v. Hobbs(1961) 107 CLR 466 per Dixon CJ at p.481.

[27] (1961) 107 CLR 466 at p.481.

[28] Quoted with approval by Mason CJ and Brennan and Dawson JJ in Foran v. Wight(supra) at pp 409, 425 and 453-4.

[29] Davis v. Spalding(1974) 373 EG 273 at p.374 per Walton J.  See too Jones v. Barkley(1781) 2 Dougl. 684 at p.694 per Lord Mansfield (a party is not required to do “a nugatory act”) cited with approval by Dixon CJ in Peter Turnbull & Co. Pty Ltd v. Mundus Trading Co. (Australasia) Pty Ltd(1954) 90 CLR 235 at pp 246-7; and Cort v. Ambergate Rly Co.(1851) 17 QB 127 the plaintiffs proved that they were ready and willing to manufacture railway chairs in accordance with their contract at the time it was repudiated by the defendants, but they were not required to prove that they had taken any steps to manufacture the chairs in order to tender them.

[30] In the Court of Appeal Counsel observed that it would in any case not have been lawful to use the flat as security for a loan to finance the purchase of the company’s shares.

[31] [1980] AC 367.

[32] See note 14 (supra)

[33] [1999] 2 HKLRD 623.

[34] See The Mihalis Angelos [1971] 1 QB 164.