PACIFIC SOUTH (ASIA) HOLDINGS LTD v. MILLION UNITY INTERNATIONAL LTD

IN THE COURT OF APPEAL

1997, No. 83
(Civil)

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H E A D N O T E

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Where a vendor, by his words or conduct, misleads the purchaser into believing that he objects to a tendered payment, not on the ground of its quality, but on some other ground (e.g., that it is too little, or too soon) he will be precluded from raising any objection he would otherwise have been entitled to take as to the quality of the tender (Polglass v. Oliver (1831) 2 Cr. & J. 15, explained).

Per Nazareth, V-P : This is a case of estoppel by representation; but even in a case in which the vendor's conduct does not give rise to an estoppel, if his conduct is unconscionable, equity will, in exceptional and special circumstances, relieve against it (Union Eagle Ltd. v. Golden Achievement Ltd., [1997] AC 514, considered).

IN THE COURT OF APPEAL

1997, No. 83
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is the defendant vendor's appeal from an order of Master Woolley (sitting as a deputy judge of the High Court), made on 9 April 1997, whereby the judge ordered, at the suit of the plaintiff purchaser, specific performance of a contract, made on 21 November 1996 for the sale by the vendor to the purchaser, for HK$205 million, of the 20^th floor of the property at 9 Queen's Road Central, Hong Kong.

2. The vendor had called off the contract; its case was that it had been entitled to do so, because the purchaser had failed to pay the vendor the sum of HK$36 million which was to become payable to the vendor, under the contract, upon the signing of a "formal sale and purchase agreement". The vendor's case was rejected by the judge. He was of the opinion that, as the purchaser had earlier made a tender to the purchaser of the HK$36 million in the form of a personal cheque drawn by one Lo Siu Fai, Louis (who happened to be, or so we were told, the purchaser's chairman and managing director), and as the vendor had not at the time of that tender expressly objected to the same on the ground of quality of the tender, the vendor had not been entitled to call off the contract.

3. The vendor now appeals.

The facts

4. On 21 November 1996, the purchaser made an offer in writing, addressed to the vendor, to purchase the property for HK$205 million. This offer (with some amendments) was accepted by the vendor on the same day. The contract thus constituted provided for a formal sale and purchase agreement to be signed on or before 2 December 1996, and that time should be of the essence. As to terms of payment, the contract provided (by clause 4) for (a) an initial deposit in the sum of HK$5 million, which was to be paid to the vendor's solicitors upon signing of the letter of offer; (b) a further deposit of 20% of the purchase price (inclusive of the initial deposit of $5 million) to be payable to the vendor upon the signing of a formal sale and purchase agreement; and (c) the balance of the purchase price to be paid upon the completion of the sale. The letter of offer provided for the initial deposit of HK$5 million to be paid by a cheque drawn in favour of the vendor's solicitors; however, on the vendor indicating that it would prefer a cashier order, a cashier order for that sum was substituted for the cheque originally tendered.

5. On 29 November 1996, Chan & Wan, the vendor's solicitors, wrote to Johnson Stokes & Master, the purchaser's solicitors, enclosing a draft of the formal sale and purchase agreement for which the contract had provided. They asked for its return "together with your cheque of HK$36 million in favour of our client being further deposit payable on signing of the agreement" (emphasis added).

6. On 2 December 1996, the purchaser's solicitors returned the draft amended in red and, at 2.46 p.m., sent the vendor's solicitors a cheque for the sum of HK$36 million in the vendor's favour. This, however, was not a cheque drawn by the purchaser's solicitors. It was the cheque drawn by Mr. Lo, to which I have already referred. The purchaser's solicitors in their covering letter wrote :

"As the Provisional Agreement provides that the further deposit is payable by our client upon signing of the formal Agreement for Sale and Purchase and such a formal Agreement for Sale and Purchase has not been made between our respective clients, the said sum of HK$36,000,000.00 is sent to you against your firm's personal undertaking not to release the same to your client, the Vendor herein, unless and until the formal Agreement for Sale and Purchase has been duly signed by our respective clients and thereafter strictly in accordance with the terms and conditions of the formal Agreement for Sale and Purchase."

7. At 4.00 p.m. on 2 December 1996, the vendor's solicitors returned the draft formal agreement for sale and purchase to the purchaser's solicitors with certain further amendments, made in green; in this letter they took no objection to Mr. Lo's cheque.

8. At 5.20 p.m., however, the vendor's solicitors sent the cheque back to the purchaser's solicitors. They wrote :

"We refer to your letter dated 2^nd December 1996 together with the purported tender of the cheque drawn by Lo Siu Fai Louis in the sum of $36,000,000.00. We must say that the purported tender is not in accordance with the Provisional Agreement. Furthermore, your client has no right to impose the undertaking on us unilaterally. In the premises, we return herewith said cheque.

All our client's rights are reserved."

9. Finally, on 2 December 1996, the purchaser's solicitors wrote to the vendor's solicitors (the letter was delivered at 9.29 a.m. the next day) accepting, save in one respect, the re-amendments proposed by the vendor's solicitors to the draft formal agreement for sale and purchase. They added this :

"We refute strongly your allegation that our client's tender of payment is not in accordance with the Provisional Agreement ..... we were instructed by our client to forward to you a cheque for the sum of HK$36 million today to be held by your firm pending the signing of the formal agreement.

In the meantime, we send you herewith our client's cheque in the sum of HK$36 million drawn in favour of your Vendor client, representing the further deposit payable upon the signing of the formal Sale and Purchase Agreement. You may release the cheque to your client when your client has executed the formal agreement in accordance with the terms of the Provisional Agreement."

10. On 3 December 1996, at 12.19 p.m., the vendor's solicitors sent to the purchaser's solicitors engrossments of the formal agreement for sale and purchase (in duplicate) and asked for these to be returned duly signed. Their letter contained no reference to Mr. Lo's cheque; and no reference to their earlier objection.

11. Later on 3 December 1996, at 2.37 p.m., the purchaser's solicitors returned the engrossments duly signed by the purchaser. At 5.22 p.m., the vendor's solicitors wrote to the purchaser's solicitors returning one copy of the agreement duly signed by the vendor. They added this:

"As your client has not tendered payment of the further deposit pursuant to Clause 4(b) of the Provisional Agreement, the receipt clause in page 16 has been deleted by us. We also take this opportunity to return the cheque drawn by Lo Sou Fai Louis to you."

12. In reply, the purchaser's solicitors wrote to the vendor's solicitors stating that they were astonished by the latter's statement that the purchaser had not tendered payment of the further deposit pursuant to clause 4(b) of the Provisional Agreement when their client's cheque was in fact first delivered to the vendor's solicitors on 2 December 1996 at 2:46 p.m. (this was before both parties had signed the formal sale and purchase agreement) and re-delivered to the vendor's solicitors at 9:29 a.m. on 3 December 1996 (this was after both parties had signed the formal sale and purchase agreement). They added this :

"We maintain that our client's tender of payment was in accordance with clause 4(b) of the Provisional Agreement ..... Since our client has duly performed and discharged its obligations under the Provisional Agreement there is no reason for your client to refuse to accept such payment and given a receipt therefor. In the circumstances, we re-tender herewith our client's cheque for the sum of HK$36 million drawn in favour of your Vendor client in payment of the further deposit. ..... We would put it on record that our client has always been, and is, ready and willing to proceed with and complete the purchase of the property in accordance with the Provisional Agreement and any further refusal by your client to accept payment of the further deposit may be treated as a wrongful repudiation of the contract ....."

13. On 4 December 1996, at 12.27 a.m., the vendor's solicitors, asserting that the purchaser had failed to tender payment pursuant to clause 4(b) of the Provisional Agreement, informed the purchaser's solicitors that they were instructed to, and that they thereby did, rescind the sale and purchase of the property.

The judgment below

14. The judge accepted that a legal tender requires cash or its equivalent. However, he held that where tender of payment is made in some other form, then unless the payee has, at the time of the tender, expressly objected to the same on the ground of the quality of the tender, it will be treated as a good tender. As to the objection of the defendant's solicitors that the tender had not been made in accordance with the contract, the judge said this:

"There is no clue as to whether the objection is as to the amount, the time of payment, the form of payment, or any other provision of the agreement. They then go on to object to the imposition of an undertaking upon them, which, intentionally or not, led the Plaintiff's solicitors to assume that the objection was as to time. In any event, what is clear is that there was no express objection to the quality of the tender. The objection, such as it was, was in general terms, and no reasonable person reading the letter in which it was written would be able to tell what it was that was objected to.

In my view an objection of this nature is not sufficient. ..... An objection in general terms, without reference to the specific complaint as to the tender, and in particular with no complaint as to the quality of the tender, is not an objection which can be relied on later when arguing that it was not a proper tender. Mercantile dealings between parties should not be conducted as a sort of childish guessing game, which, if you get wrong, you lose. They must be on the basis of what is reasonable in the circumstances. I do not consider it reasonable to leave the other side in a state where they have been told that there is an objection but, because it has not been specific, either do not know what it is or are led into a misapprehension as to its nature.

Here the misunderstanding, or misconception, was compounded by the behaviour of the Defendant's solicitors the next day. Having received the cheque again at 9.30 a.m., they proceeded with the approval of the formal agreement, returned it to the Plaintiff's solicitors for signature by their client, and received it back shortly after 2.30 p.m., all the time retaining the Plaintiff's cheque, without mentioning any objection to it, until their letter delivered at 5.22 p.m., again, as the day before, after banking hours, and again without being specific. Indeed, it is not until after 5 p.m. on 4^th December, after they had purported to rescind the agreement, that they finally explained that their objection was to the cheque, and that payment should have been by cash or cashier order. .....

What is abundantly apparent is that the Plaintiff was at all times ready and willing to perform the obligations of the agreement, and, had their solicitors been told in certain terms what the objection was, and in time to rectify the matter, instead of being presented with general objections at a time after banking hours when nothing could be done, there would have been no obstacle to this agreement being performed. I accordingly hold that the Defendant cannot now rely on the nature of the tender at the time to support rescission of the agreement."

Was the judge right?

15. So the judge held, as I have indicated, that a tender will be treated as a good tender unless the payee at the time of the tender had "expressly" objected to the quality of the tender.

16. For my part, I think this goes too far. In my judgment, it is only when the payee, by his words or conduct, has misled the payer into thinking that he objects to the tender, not on the ground of its quality but on some other ground, that he will be treated as having waived any objection he would otherwise have been entitled to take as to the quality of the tender. This is the true basis, in my judgment, for the decision in Polglass v. Oliver (1831) 2 Cr. & J. 15, on which the judge relied. There the tender was not a good tender, but the only objection to it which was taken by the payee was that he was entitled to a greater sum than had been tendered. Bayley, B. put the matter thus (at pp. 17, 18) :

"To make a tender good, it should be made in the coin of the realm, and the money ought to be produced; but the party to whom the tender is made, may make good what would otherwise be insufficient, by relying on a different objection. If he claim a larger amount, and give that as a reason for not accepting the money, he cannot afterwards object that the money was not produced ..... nor can he object that it was offered in paper. If he object to accept the sum tendered because it is in paper, which he is not bound to receive, he gives the party tendering an opportunity to make his tender in coin; but if he puts his refusal upon a different ground, he waives the objection as to the quality of the tender ..... if you objected expressly on the ground of the quality of the tender, it would have given the party the opportunity of getting other money and making a good and valid tender; but, by not doing so, and claiming a larger sum, you delude him."

17. The principle is that the payee is not to "delude" the payer into believing that, whatever else he is complaining about, he is not complaining about the quality of the tender. If he has acted so as to "delude" the payer into entertaining such a belief, he will not be permitted, having deprived the payer of an opportunity to make a good tender in place of the bad tender, to object subsequently to the quality of the original tender.

18. So the question here becomes : was the conduct of the vendor's solicitors such as to "delude" the purchaser's solicitors into believing that the vendor's ground of objection was, not as to the quality of the tender, but some other ground of objection?

19. I am of the opinion that it was.

20. It is clear that the purchaser's solicitors did not, until it was too late, understand the vendor's unparticularised objection to the tender to be an objection as to the quality of the tender; they believed that the objection was as to its prematurity. That this was their belief they made clear to the vendor's solicitors; but the vendor's solicitors made no attempt to disabuse the purchaser's solicitors of their belief. When the purchaser became obliged, for the first time, to tender the HK$35 million to the vendor, which was not until after the formal sale and purchase agreement had been signed by both parties, it was given no chance to do so. The vendor's solicitors, without ever having made clear what their objection to the tender had been, called off the contract.

21. What the vendor's solicitors thought they were playing at I do not know; but in the absence of any explanation otherwise, it seems to me that the only possible inference to be drawn from their conduct is that they deliberately set up the purchaser's solicitors, with a view to enabling the vendor to call off the contract without giving the purchaser any real opportunity to make a proper tender.

22. The judge took a dim view of the vendor's solicitors' conduct. So do I. They led the purchaser's solicitors into a trap. Their failure to particularise any grounds for their objection to the tender led the purchaser's solicitors into thinking that the tender was objected to on the grounds of prematurity. The purchaser's solicitors so informed the vendor's solicitors. At this stage, when there was time for the vendor's solicitors to put the purchaser's solicitors right upon this point so as to enable the purchaser to make an acceptable tender, the vendor's solicitors made no attempt to do so. We do not know if the vendor's solicitors would have come clean if the purchaser's solicitors had asked them to state precisely what the grounds of objection to the tender were. The purchaser's solicitors were entitled to expect that the vendor's solicitors would have corrected them if their belief as to the vendor's objection to the tender was mistaken. Where one party to a transaction perceives that the other party is labouring under a mistake as to some essential matter, he comes under an obligation to undeceive the other party if his omission to do so will "foster and perpetuate the delusion" (as it is put in Spencer Bower and Turner, Estoppel by Representation, 3rd Edition (1977) at para. 59). In such a case silence is in effect a misrepresentation that the facts are indeed as the other party mistakenly believes them to be; and the first party is estopped from asserting otherwise. In our case, the vendor's solicitors, knowing that the purchaser's solicitors believed that the objection to the tender was on the ground of its prematurity, came under an obligation to undeceive the purchaser's solicitors, an obligation which, disgracefully, they failed to discharge.

Conclusion

23. For these reasons, I would dismiss this appeal, with costs.

Mayo, J.A.:

24. In my view this appeal should be allowed. Mr. Edward CHAN, S.C. adopted the reasoning of Deputy Judge Woolley at p5 of his judgment where he stated on the authority of Polglass-v-Oliver [1831] 2Cr v 515 that where a tender of payment is made otherwise than as required by law, the recipient must expressly object to the same on the ground of the quality of the tender complained of. Having regard to the agreed factual background this analysis of the law was inappropriate.

25. It must have been apparent to the solicitors acting for the Purchaser that a cheque drawn by their client or some other person would be considered in a wholly different way to a Bankers draft or a cheque drawn on their own client account. The solicitors could not have laboured under any illusion that Mr. Lo's cheque was likely to be accepted as legal tender for the moneys which were payable under the provisional agreement.

26. The vendor did object to the payment of the moneys being effected by the cheque drawn by Mr. Lo. They were consistent in maintaining their objection and nothing in the correspondence which was placed before us persuades me that the vendors made any unequivocal representation to the contrary along the lines envisaged by Lord Goff at p398 of the Kanchenjunga [1990] 1 Lloyds Reports 391.

27. What is also clear is that by their letter of the 3rd December 1996 Johnson Strokes and Master were still maintaining that their tender of the payment conformed with the requirements of clause 4(b) of the provisional agreement. It did not.

28. In these circumstances it was open to the vendors to rescind the contract and in my view the Purchasers should not be granted the relief they are seeking.

Nazareth, V.-P.:

29. From the facts, which Godfrey JA has concisely stated in his judgment, I am satisfied that the following conclusions are inescapable. The parties entered into a binding albeit provisional agreement on 21 November 1996 to enter into a formal sale and purchase agreement for the purchase of the property. There is no reason to doubt that the vendor at that time intended to carry out its part of the agreement. But that plainly could not have been the position on 3 December 1996, when the vendor's solicitors were clearly bent upon suppressing their real reason for rejecting the purchaser's tender of the further deposit of $36 million and rescinding the contract at the first possible moment, to the point of keeping someone at their office well past midnight to fax their letter rescinding the contract for non-tender of the deposit at 12.27 am on 4 December 1996. It is inconceivable that the vendor's solicitors would have done so without instructions. In that light, the overwhelmingly probable reason for their studious suppression of their reason for rejecting the purchaser's tender of the cheque sent at 4 pm on 2 December, was the vendor's objective apparently not merely to escape its obligations under the contract, but to do so while forfeiting the purchaser's first deposit of $5 million and at the same time denying the purchaser its bargain. It is perhaps not without significance that the vendor's solicitors took no objection to the purchaser's cheque in their 4.00 pm letter on 2 December 1996. But what is undoubtedly of significance is that their letter of 5.20 pm returning the cheque sent by the purchaser contained no hint of the nature of their objection, for which the situation cried out.

30. I agree with Godfrey JA that there was no duty or obligation on the vendor's solicitors to stipulate the nature of the objection to the tender, and the judge was wrong upon the authorities, to take the view he did. But the absence of such an obligation in no way justified the conduct of the vendor and its solicitors.

31. In viewing that conduct, it is pertinent first of all to note that "the due completion of a conveyancing transaction requires cooperation between vendor and purchaser. The vendor, like the purchaser, must also be ready, willing and able to complete his part of the contract, in accordance with the terms and at the time and place fixed for completion. The contract is to be construed so that each party agrees to do all that is necessary to be done on his part for the carrying out of the contract" (China Pride Investment Ltd v Silver Poole Ltd [1994]2 HKC 341, 342G-I).

32. To return to the vendor's solicitors' conduct, they received the purchaser's solicitors' letter of 2 December 1996 returning the cheque for $36 million, on 3 December 1996 at 9.29 am. At that time, it could not have been other than perfectly clear to them that the purchaser's solicitors were labouring under a misapprehension as to the reason for the rejection of the tender - moreover, a misapprehension leading to the deposit not being tendered in time. Had there been the slightest desire on the vendor's part to complete the sale and purchase agreement, it is inconceivable that the vendor's solicitors would not then or even earlier have told the purchaser's solicitors of the nature of their objection to the cheque. There was always time enough for a cheque that was acceptable to have been procured and tendered if the vendor wishes to complete, as the vendor must have been aware.

33. Needless to say, in that regard, I reject the facile submission that the request made by the vendor's solicitors in their letter of 29 November 1996 to the purchasers' solicitors for "your cheque" should have been seen to be a request for a cheque drawn by the purchaser's solicitors. Likewise, I am not persuaded that the word "Furthermore" in the vendor's solicitors' letter sent at 5.20 pm on 2 December should have indicated to the purchaser's solicitors that the objection was something other than the undertaking sought by the vendor's solicitors that they would not release the cheque to the vendor. The fact of the matter is that the vendor's solicitors were in fact misled and that this could not have been other than apparent to the vendor's solicitors, who nonetheless deliberately refrained from correcting that misapprehension, as they should have done. True the purchaser's solicitors could have asked what the objection was, and their obstinate insistence that the tender of payment was in accordance with the agreement does them little credit; it does not however excuse the vendor's conduct.

34. Mr Edward Chan SC submitted that such conduct of the vendor was not merely unconscionable, but constituted sharp practice and trickery. Mr Griffiths SC resisted those submissions making a powerful submission against reliance upon unconscionability as the basis of relief in sale and purchase agreements, given particularly its uncertain nature which he likened to the Chancellor's foot by analogy with Selden's well-known comment. He relied particularly on Lord Hoffman's analysis in Union Eagle Ltd v Golden Achievement Ltd (P.C.) (1997) AC 514 of the relevant equitable jurisdiction and his general disapproval of unconscionablity as the basis of relief particularly with reference to specific performance of contracts of sale and purchase of land. Those are matters to which I shall return. Suffice it to say here that having regard to them, I am content to rest my conclusion that the appeal should be dismissed primarily upon the reasons, concisely given by Godfrey JA, with which I fully agree. They plainly rest upon estoppel by representation and not conduct that is regarded as unconscionable.

35. Returning then to unconscionability, it is significant that their Lordships, in the Union Eagle case, did not find it necessary to go so far as to reject unconscionability altogether as an acceptable basis of equitable relief, even specific performance of a contract for the sale and purchase of land. The latter, it is well to recall, is the relief that is claimed by the purchaser here, and in circumstances that restitution would not suffice.

36. The conduct of the vendor and its solicitors cannot in my view be other than unconscionable. Had it been necessary I would have upheld the decision below upon that basis, resort to which is warranted in my view by the circumstances being exceptional (see Stern v McArthur (1988) 165 CLR 489, 502, 503, and also special (see Stockloser v Johnson [1954]1 QB 476, 501) by reason of the aspects of sharp practice. I would add that the system in Hong Kong of binding provisional agreements of sale and purchase, not known in England, produces a constant flow of litigation in which the ingenuity of parties and range of circumstances may well require resort to unconscionable conduct not amounting to a representation to provide the basis for equitable relief that justice may demand. Nonetheless it is now clear from the Union Eagle case that estoppel should be the preferred basis for such relief; that must mean that specific performance upon the basis of unconscionable conduct in cases of the sale and purchase of land will be granted in increasingly exceptional and special circumstances.

37. I also agree with Godfrey JA that the respondent should have its costs.

38. By a majority, therefore, the appeal is dismissed, and there will be an order nisi that the respondent purchaser is to have its costs.