SUN LEE KYOUNG SIL v. JIA WEILI

HCA 1768/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1768 OF 2009

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BETWEEN

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J U D G M E N T

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1.  This is an application by the Plaintiff for summary judgment against the Defendant in relation to the sale and purchase of a property.

Background

2.  The Plaintiff was and is the registered owner of a property known as “Flat C on 37^th Floor of Tower 1, The Harbourside, No. 1 Austin Road West, Kowloon” (“the Property”).

3.  The Defendant was negotiating with the Plaintiff through an estate agent to purchase the Property. The estate agent involved in the transaction in question was Midland Realty International Limited (“Midland”). The price for the Property was agreed at $24 million.

4.  On 25^th July 2009 (Saturday), the Defendant put her signature on a standard form of Provisional Agreement for Sale and Purchase used by Midland and drew a personal cheque on her current account No. 472-322932-001 with HSBC (“the 1^st Account”) in the sum of $1,200,000.00 in favour of the Plaintiff (“the Cheque”). This was done with a view to an offer being made on her behalf to the Plaintiff for the purchase of the Property.

5.  On 26^th July 2009 (Sunday), two representatives of Midland, a Ms. Chan Oi Lin (“Ms. Chan”) and a Mr. Pang Man Ho, met the Plaintiff in a restaurant. At that meeting, the Plaintiff agreed to sell the Property to the Defendant and, therefore, signed on the said standard form of Provisional Agreement for Sale and Purchase already bearing the signature of the Defendant (“the Provisional Agreement”) whereby the Plaintiff agreed to sell and the Defendant agreed to purchase the Property for $24 million. The Plaintiff also accepted the Cheque representing the initial deposit of 5% of the purchase price.

6.  The relevant provisions in the Provisional Agreement read as follows : -

(i)  Clause 2

“The Purchase price of the said premises shall be HK$24,000,000.00 which shall be paid by the Purchaser to the Vendor in the manner as follows : -

(a)  Initial deposit shall be paid upon signing of this Agreement in the sum of HK$1,200,000.00.

(b)  Upon signing of the Formal Agreement for Sale and Purchase on or before 14-8-2009 further deposit shall be paid in the sum of HK$1,200,000.00.

(c)  Further deposit shall be paid on or before NIL in the sum of HK$ NIL

(d)  Balance of purchase price shall be paid upon completion on or before 30-9-2009 at Vendor’s solicitors in the sum of HK$21,600,000.00.”

(ii)  Clause 7

“7.  Should the Purchaser fail to complete the purchase in the manner herein contained, the initial deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages or to enforce specific performance.”

(iii)  Clause 8

“8.  Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of his initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific damages.”

7.  The Plaintiff caused the Cheque to be paid into the joint account of her husband and herself with the DBS Bank on 27^th July 2009 (Monday).

8.  On 28th July 2009 (Tuesday), the Plaintiff and her husband were notified by the DBS Bank that the Cheque had been dishonoured. In the notice by the DBS Bank to the Plaintiff and her husband, they were asked to “Refer To Drawer” and the reason given was: “The Unpaid Instruction Is Given By the Drawee Bank”.

9.  There is no dispute that the Cheque was in fact dishonoured.

10.  In the Affirmation of the Defendant filed on 6^th October 2009, she explained that she gave instruction through the phone banking system to HSBC to credit a sum of $1.2 million into her current account with a view to meeting the payment on the Cheque. By inadvertence, the said sum was credited into another account of hers with HSBC No. 472-296714-001 (“the 2^nd Account”) instead of the 1^st Account upon which the Cheque was drawn. The Defendant did not realize the mistake until the afternoon of 28^th July (Tuesday) when she was informed by the staff of HSBC that she had insufficient fund in the 1^st Account to meet the payment on the Cheque. Upon being so informed, she immediately gave instruction to HSBC to transfer the sum of $1.2 million from her 2^nd Account into her 1^st Account. The events as set out above are clearly supported by the bank statements for the 1^st Account and the 2^nd Account produced by the Defendant.

11.  Further, according to the Defendant, in the morning on 29^th July (Wednesday), she was told by a Ms. Lisa Pang (“Ms. Pang”) of Midland that she would contact the Plaintiff with a view to obtaining the bank account number of the Plaintiff so that the Defendant could deposit the amount of the initial deposit directly into such account. The Plaintiff was informed by Ms. Pang subsequently that the Plaintiff refused to provide her bank account number and could no longer be contacted. On the same day, the Defendant purchased a cashier order in the sum of $1.2 million (“the Cashier Order”) and caused the same to be delivered to the solicitors for the Plaintiff, Messrs. Danny K.H. Yu & Co., as payment of the initial deposit. The Cashier Order was subsequently returned by that firm to the Defendant’s solicitors under cover of a letter dated 29^th July 2009 which made it clear that the Plaintiff had exercised her right to rescind the Provisional Agreement on the ground that the Defendant had repudiated the same by not paying the initial deposit in accordance therewith.

12.  Arising out of the evidence filed by the parties, there are differences as to whether the Defendant’s side had asked the Plaintiff on Monday or Tuesday whether she had presented the Cheque for payment and whether the Plaintiff had indicated that she had not yet done so. There are further differences as to whether the Plaintiff had become unwilling to sell the Property except at a higher price.

13.  I do not intend to go into such disputes in the evidence in detail. They are not pertinent for the purpose of this application for summary judgment nor is it appropriate for the Court to conduct a mini-trial on affirmation evidence.

14.  Suffice it for me to say that on the evidence (including documentary evidence) the following is clear: -

(i)  The Cheque was presented by the Plaintiff through her own bank for payment on 27th July (Monday).

(ii)  The Cheque was dishonoured by HSBC and returned to the Plaintiff by the DBS Bank on 28^th July (Tuesday).

(iii)  The Defendant made a proposal to remit the amount of the initial deposit into the bank account of the Plaintiff and subsequently tendered the Cashier Order for the same amount to the Plaintiff on 29^th July (Wednesday).

(iv)  Both the said proposal and the tender of the Cashier Order were rejected by the Plaintiff.

15.  On 30^th July 2009, the Defendant caused the Provisional Agreement to be registered against the Property in the Land Registry.

16.  On 15^th August 2009, the Plaintiff issued the Writ of Summons with the Statement of Claim endorsed thereon in this Action.

17.  On 7^th September 2009, the Plaintiff issued the Summons now before me asking for, inter alia: -

(i)  Summary judgment in the sum of $1,200,000.00;

(ii)  An order for the vacation of the said registration in the Land Registry.

18.  In the Affirmation of the Defendant, she has exhibited a draft Defence and Counterclaim whereby she denies the Plaintiff’s claim and counterclaims for, inter alia, a declaration that the Provisional Agreement is still valid and subsisting and binding upon the Plaintiff and an order for specific performance of the same.

The Case of the Plaintiff

19.  The case of the Plaintiff can be summarized as follows : -

(i)  Although there was no express provision in the Provisional Agreement to the effect that time was of the essence thereof, as a matter of Hong Kong law as opposed to principles of English law, time was of the essence in a contract of such nature.

(ii)  The Provisional Agreement as an agreement between the Plaintiff and the Defendant came into being when on 26^th July (Sunday) the Plaintiff put her signature on it and accepted the Cheque.

(iii)  The obligation on the part of the Defendant to pay the initial deposit arose immediately thereafter under Clause 7 of the Provisional Agreement.

(iv)  The Plaintiff accepted the Cheque which should be as good as cash as the Defendant’s discharge of her obligation to pay the initial deposit “upon signing of this Agreement” under the said Clause 7.

(v)  In the normal course of banking business, if the Plaintiff banked the Cheque on 27^th July (Monday), she could expect the money to be in her account sometime on 28^th July (Tuesday) or, if she were to adopt the “marking good” procedure, she could even have had the money in her account on the same day.

(vi)  By reason of the dishonour of the Cheque, the Defendant had committed a fundamental breach and an act of repudiation of the Provisional Agreement and the Plaintiff was entitled to and did accept such repudiation.

(vii)  There is no room for equity to intervene on the ground of the Defendant’s honest mistake.

(viii) The Plaintiff is entitled to claim the initial deposit by way of forfeiture or payment on the Cheque.

(ix)  The Plaintiff is also entitled to an order for vacation of the said registration in the Land Registry.

The Case of the Defendant

20.  The case of the Defendant can be summarized as follows: -

(i)  Time was not of the essence of the Provisional Agreement because there was no express provision to that effect.

(ii)  The Cheque was dishonoured as a result of an inadvertence on the part of the Defendant.

(iii)  All along the Defendant had manifested her intention to proceed with the purchase under the Provisional Agreement rather than to repudiate it.

(iv)  On the contrary, it was the Plaintiff who was at fault by refusing to accept alternative modes of payment subsequently offered by the Defendant.

Whether Time was of the Essence

21.  In my judgment, the law in Hong Kong is quite settled by now that, for transactions similar in nature to that in the present case and in the absence of special circumstances, the parties are usually taken to have proceeded on the basis that time is of the essence of the contract despite the fact that there is no express provision to that effect in the provisional agreement for sale and purchase in question. The law was stated by the Court of Appeal in the case of Wong Wai Chi Ann v.Cheung Kwok Fung Wilson [1996] 3 HKC 287 in its judgment delivered by Godfrey J.A. at p. 290 C – I: -

“The appeal

The vendors now appeal (although, improperly, only one of them is named as the appellant).  They contend that the judge erred in finding that time was not of the essence of the agreement.

We would uphold this ground of appeal.  In these provisional agreements for sale and purchase in today’s secondary market in Hong Kong, everybody does, usually, proceed on the footing that time is to be of the essence, and that a purchaser who refuses or fails to sign the agreement, if it is available for signature on the specified date, and there is no blame to be attributed to the vendor, will be held to be in repudiatory breach of the agreement.  This has not always been appreciated by judges of first instance, see, for example, the decision of Rhind J in DH Shuttlecocks Ltd v Keung Shiu Tang [1993] 2 HKC 600 and the decision of Keith J in Wong Shiu Hung v Kwok Sing Leung [1992] 2 HKC 369, [1992 – 93] CPR 306 (but cf the decision of Cheung J in Choi Siok Pin v Lui Bing Bing Betty [1994] 3 HKC 675, [1994 – 95] CPR 446 especially at 682B (HKC), 453B (CPR).  And there is a decision of this court which may  have overlooked the point: see Yiu Yau Ping v Fong Yee Lan [1992] 2 HKLR 167.  Of course, each case must depend on its own facts.  But in the absence of special circumstances, it will usually be the case that a provisional agreement for sale and purchase in the common form in use in Hong Kong will be treated as one of which time is of the essence, although no express provision in that behalf is contained in the agreement (for helpful dicta to that effect in this court see: Man Sun Finance International Ltd v Lee Ming Ching Stephen [1993] 1 HKC 113 at 120B – D, [1992 – 93] CPR 340 at 347A – D per Litton JA; Lee Kenny v Wong Kwok Yan [1994] 2 HKC 309 at 316, [1994 – 95] CPR 356 at 363 per Macdougall VP; and Health Link Investment Ltd v Pacific House Investment Ltd [1995] 1 HKC 249 at 258, [1994 – 95] CPR 399 at 408 per Liu JA).”

22.  In the case of Kwan Siu Man v. Yaacov Ozer [1999] 1 HKLRD 216, Litton PJ sitting in the Court of Final Appeal approved of the Wong Wai Chi Ann decision and said this at page 226 F – H: -

“Further, as is common knowledge in Hong Kong, the property market is highly volatile.  Whatever might have been the position in England in the last century – when the concept of an “open contract” was first developed in a climate of a stable pound sterling and no inflation – in the Hong Kong of today, the date of completion is an essential term of any contract for the sale and purchase of land: To the extent that in the case of a provisional agreement in the common form in use here, time for completion would normally be treated as of the essence of the agreement, even though no express provision to that effect is in the agreement: see Wong Wai Chi v Cheung Kwok Fung [1996] 3 HKIC 287.”

23.  The very fact that the parties chose to enter into a provisional agreement as opposed to waiting to enter into a much more comprehensive formal agreement for sale and purchase which would normally take time to prepare shows the urgency of the situation. Furthermore, a formal agreement for sale and purchase prepared by solicitors which would normally be the next step for the parties to take after the provisional agreement would usually, if not invariably, contain a provision to the effect that time is of the essence in every respect thereof.

24.  Mr. Koo, Counsel for the Defendant, seeks to rely on the decision of Deputy Judge Lugar-Mawson (as he then was) in the case of Wong Kwai On v. Leung Wong Cheong [1992] 2HKLRD 779 where the learned Deputy Judge came to the conclusion that the Wong Wai Chi Ann case was decided per incuriam because the attention of the Court of Appeal had not been drawn to section 11 of the Law Amendment and Reform (Consolidation) Ordinance Cap. 23 and the English case of Rainieri v. Miles [1981] A.C. 1050 and therefore refused to follow it. Mr. Koo argues that, on the authority of that case, time should not be of the essence of an agreement unless there is an express provision to that effect.

25.  Deputy Judge Lugar-Mawson set out his reasoning at pp. 791B – 793D of the report as follows: -

“With respect to the Court of Appeal, it would appear that in that case their attention was not drawn to s.11 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23), which provides that:

Stipulations in contracts as to time or otherwise which would not before 30 [sic] October 1873 have been deemed to be of the essence of such contracts in the court in its equitable jurisdiction shall receive in the court the same construction and effect as they would formally have received in equity.

Section 23 of the Law Amendment Reform (Consolidation) Ordinance (Cap. 23) is taken from s.25(7) of the Supreme Court of Judicature Act 1873 which is now found in English law, in a slightly amended form, in s.41 of the Law of Property Act 1925, which provides:

Stipulations in a contract as to time or otherwise, which according to the rules of equity are not deemed to be or have become of the essence of contract, are also construed and have effect of law in accordance with the same rules.

What does s.11 of the Law Amendment Reform (Consolidation) Ordinance (Cap. 23) mean?  And what was the position in Hong Kong on 30 [sic] October 1873, the date on which the courts of equity and common law in England came together as the Supreme Court of Judicature?

The position in England on that day and the accepted interpretation of s.41 of the Law of Property Act 1925 in England, is best explained in the judgment of Buckley LJ in Raineri v Miles [1981] AC 1050 at pp.1058 – 1059.  In a passage which the majority of the House of Lords (Lord Edmund-Davies, Fraser of Tullybelton, Russell of Killowen and Keith of Kinkel) accepted as correct in their judgments in the subsequent appeal to the House of Lords.

Buckley LJ said this:

At common law a term of a contract stipulating when the contract should be performed was always regarded as an essential term of the contract, but, as Lord Parker pointed out in Stickney v Keeble [1915] AC 386 at p.415, in contracts for the sale of land equity, having a concurrent jurisdiction, did not look upon the stipulation as to time in precisely the same light.  Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion, and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.

Since the statutory fusion of law and equity in 1873 it has been enacted (Supreme Court of Judicature Act 1873, s.25(7), now re-enacted in slightly different language in the Law of Property Act 1925, s.41), that stipulations of a contract, as to time or otherwise, which according to rules of equity are not deemed to be or to have become of the essence of the contract are also to be construed and have effect at law in accordance with the same rules.  The third parties rely on s.41 on the point of construction.  But, as was pointed out by Lord Cairns and Rolt LJ in Tilley v Thomas [1867] LR 3 Ch App 61, the construction of a contract must be the same in equity as in a court of law.  A clause which provides in terms that the contract shall be completed a named day cannot, in the absence of a clear context, be construed as meaning that it shall be completed on some later day.  Its effect may be modified by equitable rules, but the meaning of the language cannot be.  In equity a party to a contract who is seeking equitable relief was not barred merely by an earlier failure on his part to comply precisely with a completion date.  So long as a court of equity would have disregarded a failure to comply with a time stipulation for the purpose of granting the equitable remedy of specific performance, it would have restrained an action at law based on that failure.  In considering whether to restrain an action at law the Court of Chancery took cognizance of everything which had happened up to the date of the decree restraining the action at law.

Since the fusion of law and equity the High Court is to have regard to all those events and is to grant or withhold the common law remedy of damages for breach of contract upon the principles which would have actuated the Court of Chancery in permitting or restraining proceedings at law: Stickney v Keeble [1915] AC 386 at p.417 per Lord Parker.  This is, in my opinion, the whole effect of the Law of Property Act 1925 s.41 relevant to this case.  It does not negative the existence of a breach of contract where one has occurred, but in certain circumstances it bars any assertion that the breach has amounted to a repudiation of the contract.  Thus, if a purchaser has failed to complete on the contractual completion date, he may still recover damages which he has suffered by reason of some default by the vendor if he was ready and willing to complete within a reasonable time after that date: per Fry LJ, Howe v Smith 27 Ch D 89 at p.103.  This is not because the purchaser committed no breach of contract in failing to complete on the fixed date, but because equity would not allow the vendor to rely upon that breach in the circumstances.

Prior to 1 July 1997, by virtue of s.3 of the Interpretation [sic] of English Law Ordinance (now repealed), the common law and the rules of equity applied in Hong Kong.  It follows that prior to reunification, the position in Hong Kong before 30 [sic] October 1873 with regard to stipulations in contracts as to time was exactly the same as it was in England before that date.

By art.8 of the Basic Law and s.7 of the Hong Kong Reunification Ordinance (Cap.1556), the laws previously in force in Hong Kong prior to 1 July 1997, including the common law and equity, are maintained.  The position now, in November and December 1998, is exactly the same as it was prior to 1 July 1997.

I accept Buckley LJ’s interpretation of s.41 of the Law of Property Act 1925 as being the correct interpretation of Hong Kong’s analogous provision – s.11 of the Law Amendment Reform (Consolidation) Ordinance (Cap.23) – and that it establishes the legal principles on which I must decide this issue.

As the Court of Appeal’s decision in Wong Lai Chi Ann & Another v Cheung Kwok Hung Wilson & Others [1996] 3 HKC 287 appears at variance with the binding statutory requirements of s.11 of the Law Amendment Reform (Consolidation) Ordinance (Cap.23), and not to represent a correct interpretation of the position with regard to contracts for the sale of land where the parties have not contracted to make time of the essence, I do not believe that I am bound by it.”

26.  What Deputy Judge Lugar-Mawson appears to have decided is that: -

(i)  By virtue of section 11 of the Law Amendment Reform (Consolidation) Ordinance Cap.23 (“Cap.23”), the relevant branch of the law applicable in Hong Kong has always been the same as that applicable in England under section 41 of the Law of Property Act 1925 (“the LPA”).

(ii)  In the case of a contract for the sale of land where there is no express provision to the effect that time is of the essence of the contract and where one party has failed to perform his duty according to the time schedule set out in the contract, the court in Hong Kong is duty-bound to consider whether it should exercise its equitable jurisdiction pursuant to section 11 of Cap.23 and grant relief to the party at fault despite his breach.

(iii)  The Court Appeal in the Wong Wai Chi Ann case failed to consider section 11 of Cap.23 in coming to its conclusion as set out in paragraph 21 above and therefore that case was decided per incuriam and wrong.

27.  With the greatest respect to the learned Deputy Judge, I do not agree with his conclusion. I believe that the learned Deputy Judge might have misunderstood the Wong Wai Chi Ann case and the case of Raineri vMiles [1981] AC 1050 on which he relied for his conclusion.

28.  In the Raineri case, the third parties agreed to sell their house to the defendants under a contract by which completion with vacant possession was fixed for July 12, 1977. At the same time, the defendants agreed to sell their house to plaintiff and completion with vacant possession was also fixed for July 12, 1977. It is important to note that it was common ground between the third parties and the defendants and between the defendants and the plaintiff that time was not of the essence of their respective contracts. On July 11, the third parties informed the defendants that they could not complete on the following day. In turn, the defendants informed the plaintiff that they could not complete on July 12. The plaintiff by that time, however, had given up possession of the house he was selling prior to buying the defendants’ house and, therefore, he had to find temporary accommodation for himself and his family. On July 13, the defendants served on the third parties a notice to complete within 28 days under a provision in the contract between them. The third parties complied with the notice and completion of both contracts took place on August 11. The plaintiff commenced proceedings against the defendants to recover the cost of the temporary accommodation as damages for breach of contract and obtained summary judgment for damages to be certified on inquiry. The defendants took out third party proceedings against the third parties claiming indemnity against the plaintiff’s claim on the ground that the plaintiff’s claim arose as a result of the third parties’ breach of contract in failing to complete on July 12. Whitford J. dismissed the third party claim on the ground that for the claim to succeed it had to be established that the failure arose from some unreasonable action or inaction on the part of the third parties and, as no such case could be made out, the defendants were not entitled to the relief sought. On appeal, the Court of Appeal allowed the defendants’ appeal. The third parties appealed to the House of Lords and failed.

29.  The House of Lords held that a clause providing for completion on a specified day could not, in the absence of a clear context, be construed as meaning that completion could take place within a reasonable period after the date fixed; that there was nothing in the context of the contract which permitted a construction that completion was to be on July 12 or at a reasonable time thereafter and, therefore, it followed that the third parties were in breach of contract when they failed to complete on the contractual date; that breach of a contractual stipulation as to time which was not of the essence of a contract would not be treated as a breach which would entitle the innocent party to treat the contract as terminated or which would prevent the defaulting party from suing for specific performance but nevertheless it was a breach of the contract and entitled the injured party to damages if he had suffered damage.

30.  In the earlier case of United Scientific Holdings Ltd. v. Burnley Borough Council [1978] AC 904, Lord Simon of Glaisdale traced in great detail the history of the development of the law in relation to contractual stipulations as to time both under the old common law and equity and their merging under the Judicature Act 1873, especially section 25 (7) thereof which came to be replaced by section 41 of the LPA in a slightly different form. At pp. 943F – 944E, he says: -

“One of the contemplated differences between the rules of common law and equity was with regard to contractual stipulations as to time.  That difference was resolved in favour of equity by section 25 (7), replaced by section 41 of the consolidating Law of Property Act 1925, which is the provision that falls for construction in the instant appeals (Farrell v Alexander [1977] A.C. 59) :

“Stipulations in a contract, as to time or otherwise, which according to rules of equity are not deemed to be or to have become of the essence of the contract, are also construed and have effect at law in accordance with the same rules.”

This can only be interpreted by bearing in mind that the object of section 25 of the Supreme Court of Judicature Act 1873 was to reconcile the differences between common law and equity so that the two systems (together with the admiralty, testamentary and matrimonial) could form a single coherent code.  This merely reinforces the plain and ordinary sense of the words.  I cannot read section 41 of the Law of Property Act as meaning other than that, whenever contractual stipulations as to time fall for consideration in any court, they shall not be construed as essential, except where equity would before 1875 have so construed them – i.e., only when the strict observance of the stipulated time for performance was a matter of express agreement or of necessary implication.

In my view the modern law in the case of contracts of all types is correctly summarized in Halsbury’s Laws of England, 4^th ed., vol. 9, para. 481, p. 338: -

“Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; …”

I agree with the analysis made by my noble and learned friend on the Woolsack of Stickney v. Keeble [1915] A.C. 386; and that, correctly understood, there is nothing in that case which imposes any historically-founded complication or modification on the law as stated in Halsbury.  Its true basis is that the law will not help a party to gain an advantage from a contract which he has himself put it of his own power to perform, unless his own expression of intention not to perform was in consequence of a fundamental breach by the other party (see p. 416).  It was to the attempt to outflank this basic rule by arguing that under section 25 (7) of the Act of 1873 it was only necessary to consider the situation at the institution of the suit that the remarks of Lord Parker of Waddington on p. 417 were directed.”

(emphasis added)

31.  Lord Fraser of Tullybelton agreed with Lord Simon of Glaisdale. He says at pp. 957F – 958C of the report as follows: -

“My Lords, I am not qualified to explore the history of the two streams of English jurisdiction, legal and equitable, which formerly flowed in separate channels.  But since the Supreme Court of Judicature Act 1873 they have at least shared the same channel, and I gratefully adopt the reasons given by my noble and learned friends Lord Diplock and Lord Simon of Glaisdale for thinking that they have now merged into a single stream.  Consequently rules of equity, so called because they are as a matter of history derived from equity are now simply part of the corpus of English law and as such they are free to develop like other parts of that law.  Neither section 41 of the Law of Property Act 1925 nor section 27 (5) of the Supreme Court of Judicature Act 1873 contains any negative provision against the development or extension of equitable principles, and the effect of those sections is quite different from the incorporation into the law of a colony of the law of England as it stood at some specified date – see for example Watts and Attorney-General for British Columbia v Watts [1908] A.C. 573.  I consider that section 41 should now be taken to mean what it appears to say and that the law is correctly summarized in the following passage from Halsbury’s Laws of England, 4^th ed., vol. 9, para. 481:

“The modern law, in the case of contracts of all types, may be summarized as follows.  Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subject to unreasonable delay gives notice to the party in default making time of the essence.”

See also Chitty on Contracts, 23^rd ed. (1968), vol. I, paras. 1140- 1141, and Fry on Specific Performance, 6^th ed., para. 1073.”

(emphasis added)

32.  Going back to theRaineri case, Lord Fraser of Tullybelton again referred to the said paragraph 481 in Halsbury’s Laws of England relied upon by the respondents for whom he found. After referring to section 41 of the LPA, he says at p. 1089 as follows: -

“Although the word “construed” is used in that section, there can be no doubt that as a matter of mere construction the stipulations in a contract must have the same meaning in equity as they have at law, as was pointed out by Cairns L.J. and by Rolt L.J. in Tilley v Thomas, L.R. 3 Ch. App. 61. ..…

The real question is how far the effect of a stipulation for completion on or before a specified date is modified by the rules of equity.  On that question, so far as it relates to this appeal, there are two views which are conveniently stated in two of the text books to which we were referred.  In Williams on Vendor and Purchaser, 4^th ed., p. 991, in a section headed “Breach of the contract and discharge therefrom after breach” there is the following statement :

“It follows that, except where time is of the essence of the stipulation, a breach of contract is only committed in the case of unreasonable delay in the performance of any act agreed to be done.  For example, where time is not essential, a party failing to complete a sale of land on the day fixed therefor by the agreement does not then commit a breach of contract either in equity or at law;it is only on failure to complete within a reasonable time after that day that the contract is broken.” (My italics.)

Several cases are cited as authority but the appellants’ counsel conceded that  they do not support the statements in the text.

The opposite view, for which the respondents contend, is stated in Halsbury’s Laws of England, 4^th ed., vol. 9 (1874), para. 481 as follows:

“The modern law, in the case of contracts of all types, may be summarized as follows.  Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.  Even if time is not of the essence a party who fails to perform within the stipulated time will be liable in damages.”

The authority cited for the last sentence of that quotation is Phillips v Lamdin [1949] 2 K.B. 33, a case to which I shall return later.

This matter was considered in Stickney v Keeble [1915] A,C, 386, where Lord Parker of Waddington, after referring to the fact that courts of law have always held parties to their bargain in respect of time went on to say, at pp. 415 – 416:

“In such cases, however, equity having a concurrent jurisdiction did not look upon the stipulation as to time in precisely the same light.  Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion,and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.  This is really all that is meant by and involved in the maxim that in equity the time fixed for completion is not of the essence of the contract, but this maxim never had any application to cases in which the stipulation as to time could not be disregarded without injustice to the parties … It should be observed, too, that it was only for the purposes of granting specific performance that equity in this class of case interfered with the remedy at law.”(My italics.)”

(emphasis added)

33.  According to my understanding of the abovementioned cases, the relevant principles can be summarized as follows: -

(i)  The rules of construction of contractual provisions are the same under the common law and equity.

(ii)  Section 41 of the LPA in England and section 11 of Cap. 23 in Hong Kong have the effect of enabling the courts to exercise their equitable jurisdiction to interfere with the grant of remedies normally available under the common law for breaches of contract only under limited circumstances and depending on the nature of the relief sought by the respective parties.

(iii)  The said paragraph 481 of Halsbury’s Law of England set out in their Lordships’ speeches referred to above is a correct statement of the law after taking into account the effect of section 41 of the LPA in England and section 11 of Cap. 23 in Hong Kong.

34.  The decision of the Court of Appeal in the Wong Wai Chi Ann case is entirely in accordance with the principles set out in the said paragraph 481. Although the provisional agreement in that case did not contain any express provision to the effect that time was of the essence thereof, the Court of Appeal in the passage in their judgment quoted in paragraph 21 above in effect applied the second limb in the said paragraph 481 and considered “the nature of the subject matter of the contract” and “the surrounding circumstances” and decided that time was in fact of the essence of the contract.

35.  Indeed, in the subsequent case of Kwan Siu Man referred to in paragraph 22 above, Litton PJ carried out the same exercise in the passage quoted therein.

36.  Furthermore, in the earlier case of Man Sun Finance(International) Corp. v Lee Ming Cheung Stephen[1993] 1 HKC 113, Litton JA (as he then was) sitting with Godfrey J (as he then was and as the Judge who later delivered the judgment in the Wong Wai Chi Ann case) had already dealt with an argument by Counsel based on the Raineri case. At pp. 119B – 120E of the report, Litton JA says as follows: -

“Mr. Graham, counsel for the vendor, argues that, as a general principle of equity, unless the agreement specifies otherwise, time is not of the essence in a contract for the sale of land.  Accordingly, he argues, when the time for ‘performance’, that is 3 April 1992, has passed, and neither party had given notice appointing a reasonable time for performance, the tender of the cheque  for $400,000 on 22 April 1992 was within time.  At least, arguably so, and, accordingly, the vendor should have leave to defend.

In my judgment, the ‘principles of equity’ upon which Mr. Graham relies do not justify this conclusion.

Historically, at common law, a term of a contract stipulating when the contract should be performed was always regarded as an essential term but, in contracts for the sale of land, equity, having a concurrent jurisdiction, did not look upon the stipulation as to time in precisely the same light: see Buckley LJ in Raineri v Miles (Wiejski, third party) [1981] AC 1050, 1058D.  The reason, based upon practical difficulties concerning the conveyance of land in England, is explained thus by Croom-Johnson J in Phillips v Lamdin [1949] 2 KB 33, 42 – 43 (cited with approval by Lord Edmund Davies in Raineri v Miles at 1084E – F) :

There is no distinction to be drawn in general … between contracts for sale of land and any other contracts except in this respect, that where the contract is not completed owing to some conveyancing difficulty, or some difficulty with regard to title and the matter goes off, courts of equity will not give damages for loss of the bargain, the reason apparently being that the uncertainty of title in this country is thought to make an exception to that general rule … .

Hence, in contracts for the sale of land, where completion is stipulated to take place at a certain time, equity would restrain the vendor from recovering the equitable interest in the land created by the contract, and would also not allow the purchaser to repudiate, simply because on the day fixed for completion one or other of the parties was unable to complete or unless, of course, time has been made expressly ‘of the essence’: see Templeman LJ in Raineri v Miles at p. 1062D.

But this does not mean that equity will amend or rewrite the contract.  As Lord Shaw of Dunfermline said in Maclaine v Gatty [1921] 1 AC 376, 393:

… my mind cannot comprehend the elasticity of punctuality.  I know of no method of construction of a contract by way of contradiction of it.

The ‘principle’ for which Mr. Graham contends comes to no more than this: where it could do so without injustice to the parties, equity would decree specific performance of a contract for the sale of land, notwithstanding that the date fixed for completion has passed: but this ‘principle’ would have no application where, for instance, there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term of the contract.

The parties here have appointed 3 April 1992 as the day when (at the latest) the balance of the deposit must be paid and, simultaneously, the formal agreement signed.  They appointed no other day.  They did not say: ‘3^rd April 1992 or some reasonable time thereafter’.  Assume that it was the purchaser who was unable or unwilling to complete the formal agreement and pay the balance of deposit on 3 April 1992, is the vendor not entitled there and then to invoke cl 7, forfeit the deposit of $200,000 and resell the flat and car parking space the next day?  Is cl 7 to be construed as if the rights of the vendor were (to use Miss Yuen’s expression) ‘left in abeyance’ for a period, not to crystallize until it has served a notice requiring the purchaser to ‘complete’?  Is the vendor required to wait for the purchaser’s further failure before he could invoke cl 7?  The anser to my mind must be ‘no’.  If time is ‘of the essence’ for the purchaser in cl 7, why should it not be so for the vendor in cl 8?

In my judgment, Miss Yuen is correct in her primary contention.”

(emphasis added)

37.  With the greatest respect to Deputy Judge Lugar-Mawson, I do not agree that the Wong Wai Chi Ann case was decided per incuriam or wrongly decided. Godfrey JA would have been very familiar with what was said in the Man Sun Finance case.

38.  On the basis of the authorities cited above, I find that time was of the essence of the Provisional Agreement in the present case despite the absence of any express provision to that effect. I base my finding on the nature of the transaction and the property, namely, the sale of a flat in a large development in the secondary market. I further base my finding on the surrounding circumstances, namely, the entering into a provisional agreement by the parties in the volatile property market in Hong Kong and the fact that completion was to take place within a relatively short time, i.e., about 9 weeks from the date of the Provisional Agreement.

Breach and Repudiation by the Defendant

39.  Mr. Koo argues that, on the authority of Millichamp v. Jones [1982] 1 WLR 1422, since the non-payment of the initial deposit on time by the Defendant was the result of a mere oversight on her part, there was no fundamental breach of the Provisional Agreement by her. Furthermore, the Plaintiff should have notified the Defendant about the dishonour of the Cheque and given her an opportunity to remedy the situation. Mr. Koo further submits that the Millichamp case was adopted in a case in Hong Kong: Wong Fai v. Rank Chance Development Ltd. (HCA 18234/1998, unreported decision of Cheung J. 16/2/01).

40.  It would be convenient for me to set out the relevant parts of the headnote in the report of the Millichamp case as follows: -

“On January 12, 1970, the plaintiffs, three brothers, bought a farm from their father for £14,575 to sell to the defendant, their brother-in-law, who had helped financially with the purchase, 48½ acres of the land adjoining his own.  On January 28, 1970, the date of completion, the plaintiffs and the defendant entered into an agreement under seal whereby the plaintiffs were to have the option of buying back the land from the defendant at the end of 10  years for £14,575 together with such taxes, duties, levies and tithes as the defendant might become or had already become liable for in pursuance of the exercise of the option.  Clause 5 of the option agreement made provision for the payment of a deposit of £1,457.50.  On April 17, 1980, the plaintiffs gave notice in accordance with the agreement exercising the option, but they did not pay over to the defendant’s solicitors the deposit.  Nothing was said about it by either side at that stage.  On June 24, 1980, at the defendant’s request, the parties entered into a written variation of the option agreement extending the date for completion of the exercise of the option to September 30, 1980.  When the defendant learnt that a deposit as required under the option  agreement had not been paid he told the first plaintiff that he did not think he would let the plaintiffs have the 48½ acres back, and on September 24 his solicitors wrote claiming that the defendant was entitled to treat the option agreement as discharged.  On September 25, 1970, the plaintiffs’ solicitors proffered the deposit of £1,457.50 but the cheque was refused.

On the plaintiffs’ claim for specific performance of the option agreement: -

Held, (1) that in a contract for the sale of land a requirement that a deposit should be paid was not a condition precedent failure to fulfil which would prevent the contract from coming into existence at all; but that it was, in general, a fundamental term, breach of which entitled a vendor to treat the contract as discharged and to sue for damages, including the unpaid deposit (post, p. 1430G – H).

  Dewar v Mintoft [1912] 2 K.B. 373 applied.

(2)  That there was nothing in the terms of the option agreement itself, considered in the light of the circumstances at the time it was executed, to displace the general rule that payment of the deposit under clause 5 was to be regarded as a fundamental term; but that the plaintiffs’ non-payment of the deposit was a mere oversight and was insufficient to amount to a breach of it (post, p. 1431D – E, F – G).

Per curiam.  It was incumbent on the defendant, before he could treat the plaintiffs’ failure to pay the deposit as a repudiation of the contract, to tell them that he was minded to do so and to give them an opportunity of complying with their obligation.  Only if they then showed in some way that they were unwilling or unable to comply with it would he become entitled to consider their conduct a sufficiently clear breach of the contract to entitle him to treat it as discharged (post, pp. 1431 H – 1432A).”

41.  In my judgment, the Millichamp case is distinguishable from the present case. The case involved an option exerciseable at the end of a 10-year period. There was no express provision to the effect that time was of the essence or surrounding circumstances pointing to that direction. It does not assist the Defendant.

42.  Furthermore, the case of Wong Fai cited by Mr. Koo also does not assist. It concerns an agreement for a joint venture to develop land in the New Territories. Cheung J. ruled that time was not of the essence of the agreement and he referred to the Millichamp case in that context. At pages 11 – 12 of his Judgment, he said: -

“Time of the essence

Mr. Cheung further submitted that by the nature of the transaction, time is of the essence of their agreement.  The plaintiff had failed to pay the premium within the extended time granted by the government.

First of all, I had already held that the defendants cannot rely on the time is of the essence clause in the English draft.  Secondly, considering the long delay in the development of the house and the repeated compromises and changes, I do not find time to be of the essence.  No doubt the plaintiff had agreed to pay for the premium, but if the defendants should treat time to be of the essence, then they should give notice to the plaintiff specifying this need: see Snell’s Equity, 30^th Edn, para. 40 – 40.

While the letter of 27 November 1998 imposed a deadline of 10 December 1998 for the payment of the premium, and the letter stated that the defendants:

“shall hold your client for loss and damages arising from the default on his part and no further written correspondence will be entered into in this regard,”

There is no similar provision in the further letter of 18 December 1998 when the defendants informed the plaintiff that the District Lands Office had extended the payment of premium to 31 December 1998.

In Millichamp and Others v Jones [1982] 1 WLR 1422, it was held that an omission by oversight to pay deposit on time would not necessarily debar a purchaser from obtaining specific performance and the court held that more should be given to the purchaser to comply with the obligation before the omission could be treated as a repudiation.  In my view, the same approach should be adopted in the present case, the plaintiff obviously wished to have the house transferred to him.  The non-payment of the premium is not due to his inability or refusal to pay.”

43.  In the Millichamp case, Warner J. referred to the case of Dewar v. Mintoft [1912] 2 K.B. 373 and said that the decision of the House of Lands in Johnson v Agnew [1980] A.C. 367 showed that the Dewar case was correctly decided.

44.  In the Dewar case, there was a sale of a farm by auction. The defendant made a bid successfully and then left without paying any deposit. The Court held that there was a sufficient memorandum as a result of the subsequent correspondence between the parties which had the effect of binding the defendant to the transaction subject to the conditions of sale and further that the defendant had repudiated the contract. One of the conditions of sale read as follows: -

“Lastly – If the purchaser shall neglect or fail to comply with any of the above conditions his deposit money shall be forfeited to the vendor who may with or without notice resell the premises without previously tendering a conveyance to the defaulter at this sale and any resale may be made by auction or private contract at such time subject to such conditions and in such manner generally as the vendor may think proper and if thereby the vendor shall incur a loss by reason of diminution in price or expenses incurred or both after taking into account the deposit the defaulter at this sale shall pay to the vendor the amount of such loss as liquidated damages and on any such resale by auction the premises may be bought in and all expenses consequent on an unsuccessful attempt to resell shall be forthwith paid to the vendor by the defaulter at this sale.”

The farm was subsequently resold and the actual damage suffered by the vendor by reason of the breach of contract was less than the sum the purchaser would have deposited if he had carried out the contract.  The Court held that the condition set out above applied although no deposit had in fact been paid and that the vendor was entitled to recover the amount which would have been deposited by the purchaser if he had performed his contract and not merely the actual damage suffered by the vendor.

45.  In all the circumstances, I find that in not having arranged to have sufficient funds in the 1^st Account to meet the Cheque when presented by the Plaintiff resulting in the same being dishonoured, the Defendant had committed a breach of the Provisional Agreement and repudiated the same which repudiation the Plaintiff was entitled to accept and did accept.

46.  In my judgment, the Defendant is liable to pay damages to the Plaintiff in the sum of $1,200,000.00.

Action on the Cheque

47.  Furthermore, the Plaintiff is suing the Defendant on the Cheque which was dishonoured. A cheque is as good as cash. The Defendant has not shown any defence to the Plaintiff’s claim on the Cheque.

48.  I also hold that the Defendant is liable to the Plaintiff on the Cheque in the sum of $1,200,000.00.

49.  The Plaintiff is, of course, not entitled to recover the sum twice.

Conclusion

50.  In the result, I grant summary judgment to the Plaintiff as follows: -

(i)  Judgment to the Plaintiff in the sum of $1,200,000.00 with interest thereon at the rate of 3% per annum from the date of the Writ to the date of Judgment.

(ii)  An order that the registration of the Provisional Agreement against the Property in the Land Registry by Memorial No. 09073002290012 be vacated.

No doubt, the Plaintiff’s solicitors will submit a draft of the formal Order for the Court’s approval.

51.  I also make an order nisi that the Defendant should pay the costs of this action, including the application for summary judgment, to the Plaintiff to be taxed on a party and party basis, if not agreed.

52.  I should add that, in making my decision, I do have a considerable amount of sympathy for the Defendant for what has happened. In view of the settled legal principles, however, I have no alternative but to find for the Plaintiff. This is how the commercial world works.

53.  I also cannot leave this case without expressing my gratitude to Counsel on both sides who obviously argued their respective clients’ causes to their best ability and who provided me with invaluable assistance.