FIRST SHANGHAI ENTERPRISES LTD. v. DAHLIA PROPERTIES PTE LTD.

CACV 1308/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1308 OF 2001

(ON APPEAL FROM HCA 13426 OF 1997)

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J U D G M E N T

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Hon Yeung JA (giving the judgment of the Court):

1. On 14 October 1997, the Plaintiff, First Shanghai Enterprises Ltd. (First Shanghai) as purchaser executed a provisional sale and purchase agreement to purchase the property known as 38th Floor, Lippo Centre (the property) from the Defendant, Dahlia Properties PTE Ltd. (Dahlia) for $223.41 million.

2. The formal sale and purchase agreement (the Agreement) was signed by First Shanghai on 22 October 1997 and by Dahlia on 23 October 1997. Completion was scheduled to take place on 31 October 1997 between 9.30 a.m. and 5.00 p.m. and time was the essence. A deposit of 10% of the purchase price was paid.

3. Under the Agreement, "The Vendor shall prove title......prior to completion." and "any requisitions or objections in respect of the ...... title ......shall be delivered.......as soon as practicable within seven (7) working days after the receipt of the title deeds......" and if "the Vendors shall be unable or......unwilling to remove or comply with........the Vendor shall be at liberty on giving.......three (3) working days notice to annul the sale..............."

4. Between 22 and 31 October 1997, there were a total of 9 working days, inclusive of 22nd and 31st of October 1997 but excluding the intervening Sunday on 26th. Between 23rd and 31st October 1997, there were just 8 working days.

5. Before the execution of the formal sale and purchase agreement, First Shanghai's solicitors, Mr. Hodgson of Messrs. Livasiri & Co. (Livasiri) had on a number of occasions asked for the supply of the title deeds from Dahlia's solicitors, Ms. Chan of Messrs. Woo, Kwan, Lee & Lo (WKLL) for approval as "he did not want to receive the title deeds at the last minute and have no time to consider them".

6. WKLL's position however was that the title deeds and documents would not be delivered until there was a contractual obligation to so, namely after the execution of the Agreement and in any event, there was no time to collate them.

7. The title deeds and documents were delivered to Livasiri on Friday, 24 October 1997 at about 5 p.m. There were a total of 96 items of documents, about 20 of them related specifically to the property and the others related generally to Lippo Centre. One further document, namely the Agreement for Sale and Purchase Memorial No. 6702820 was delivered on 28 October 1997 as the document was only obtained by WKLL on that date. Livasiri fairly conceded that this document was of no importance.

8. Livasiri only started to peruse the documents in the afternoon on 27 October 1997 and finished in the late afternoon on 28 October 1997. The documents were considered to be incomplete. Nevertheless Livasiri was able to dictate some requisitions in the late afternoon on 28 October 1997 although there was no time to properly type out such requisitions.

9. First Shanghai consulted counsel on 29 October 1997 and a decision was made not to complete the transaction.

10. On 30 October 1997, Livasiri wrote to WKLL, suggesting that they were in breach of the Agreement by failing to supply the title deeds in time and as a result there was insufficient time to raise requisitions properly. Livasiri nevertheless did raise certain requisitions and suggested that there were still missing documents. Livasiri alleged that Dahlia was thus in repudiation of the Agreement and asked for the return of the deposit.

11. WKLL denied the allegation and suggested that even if First Shanghai was entitled to 7 days to raise requisitions, such right had been waived. WKLL also responded to the requisitions and supplied further documents. The response and the documents reached Livasiri at about 7.30 p.m. on 30 0ctober 1997.

12. In the meantime, there were telephone contacts between WKLL and Livasiri when Livasiri complained that they did not have sufficient time to properly raise requisitions. It was also suggested that the documents were incomplete and even if the missing documents were available, Livasiri would not have adequate time to deal with them properly before the completion date.

13. Neither party had suggested any extension of time. WKLL's position was that the original completion date would be adhered to. Livasiri was adamant that Dahlia was in repudiatory breach and First Shanghai was entitled to rescind.

14. On 31 October 1997, WKLL wrote to Livasiri threatening to forfeit the deposit unless First Shanghai completed the transaction as scheduled.

15. In a letter also dated 31 October 1997, Livasiri again complained that they had not been given adequate time to properly raise requisitions. Complaint was also made about the delivery of the documents on 30 October 1997 shortly before 7.30 p.m. which delay rendered it impossible for Livasiri to check the documents and to report to First Shanghai.

16. On 1 November 1997, WKLL forfeited the deposit on the basis that First Shanghai failed to complete the transaction before 5 p.m. on 31October 1997.

17. The disputes eventually went before Yuen J (as she then was) on the preliminary issue of liability, namely who was in breach of the Agreement.

18. The judge ruled in favour of First Shanghai, hence the present appeal by Dahlia.

The decision of the judge was based on the following findings:

(1) Dahlia was in breach of the Agreement by failing to deliver the title deeds 7 working days before the scheduled completion date when the "7 days" provision under Clause 11 of the Agreement was workable and should therefore be given effect to;

(2) The acceptance of the title deeds on 24 October 1997 did not constitute "waiver";

(3) First Shanghai was in any event entitled to terminate on 30 October 1997 when it was not given sufficient time to consider the title deeds/documents and its own position;

(4) Even if First Shanghai was in breach by its letter on 30 October 1997, the Agreement was kept alive by Dahlia. Dahlia must therefore give First Shanghai sufficient time to consider the responses to the requisitions and the new documents supplied and could not insist on completion on 31 October 1997;

(5) In the circumstance, First Shanghai had lawfully terminated the Agreement on 30 October 1997 and was not obliged to complete on 31 October 1997 or alternatively the Agreement was wrongfully terminated by Dahlia when it forfeited the deposits.

19. It was readily apparent that even by Hong Kong standard, the time frame for completion was indeed very tight. In a period of 8 or 9 days at most, title deeds had to be delivered, requisitions had to be raised and responded to. If deemed appropriate, Dahlia could annul the sale by giving 3 working days' notice.

20. We do not wish to speculate why the parties chose to operate on such a tight schedule which appeared to be somewhat irrational. Mr. Merry emphasized that it was a large and expensive transaction of over $200 million and possibly involving substantial and complex documents. He also mentioned that Livasiri was a busy conveyancer and might have other commitments and could not be expected to act in a rush.

21. We have no doubt that Mr. Merry's observation was correct. But the parties were legally represented throughout and when the Agreement was executed on 22 October 1997 they must be fully aware of their respective positions. They had set the date for completion on 31 October 1997 and time was made the essence. It was with those matters in mind that the intentions of the parties must be ascertained.

"The common and universal principle ought to be applied: namely, that an agreement ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent." (Ford v. Beech (1848) 11 Q.B. 852 at 866)

22. It may be helpful to set out Clause 11 of the Agreement in full:

"Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's solicitors as soon as practicable within seven (7) working days after the receipt of the title deeds in possession of the Vendor by the Purchaser's solicitors otherwise the same shall be considered as waived and the Purchaser shall be deemed to have accepted the Vendor's title (in which respect time shall be of the essence of this Agreement). If the Purchaser shall make and insist on any objection or requisition in respect of the title conveyance or any matter appearing on the title deeds or particulars or conditions or otherwise of the Property which the Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with or if the title of the Vendor shall be defective, the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his solicitors not less than three (3) working days' notice in writing to annul the sale in which case, unless the objection or requisition shall have been in the meantime withdrawn by the Purchaser or the same shall have been removed or complied with by the Vendor, the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to a return of all the said deposit or deposits but without costs or compensation and provided the same is returned with five (5) working days without interest."

23. Clause 11 clearly envisaged the raising of requisitions which needed to be dealt with. It also entitled Dahlia to opt out of the Agreement by giving 3 working days' notice. To make such option meaningful, the requisitions must be raised at the latest 3 days before the completion date.

24. When parties execute formal document, particularly when lawyers are involved, there must be a presumption that there are no linguistic mistakes in the document unless one can conclude from the background that something must have gone wrong with the language used, e.g. the ordinary meaning of the words involve an absurdity or would lead to very unreasonable result or would impose on the party/parties a duty that it/they could not reasonably be expected to assume.

25. In Wickman Machine Tools Sales Ltd v L.G. Schuler AG [1974] A.C. 235 Lord Reid expressed an often-cited dictum in the following terms:

"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make their intention abundantly clear."

26. The Agreement did not expressly provide that title deeds should be delivered 7 working days before completion. The operative words were "any requisitions or objections ......shall be delivered......as soon as practicable within seven (7) working days after the receipt of the title deeds....."

27. As conceded by Livasiri, if the Agreement allowed First Shanghai 7 working days to raise requisitions and with the contemplated steps to be taken by the parties, it would not be possible for the transaction to be completed on 31 October 1997.

28. The judge found the 7 working days provision workable on the basis that the documents of title delivered under the Agreement were completed and there was no need to raise any requisitions at all. She said at page 17 of the judgment:

"However, if the Vendor was sure that it would be providing complete title deeds and documents on 22 October, no requisitions would have been needed or warranted and the parties would have been able to completed as scheduled."

29. That could not be the objective intention of the parties as the raising of requisitions was clearly envisaged under the Agreement.

30. An instrument should not be construed on the basis that the stipulated rights would not be exercised and the obligations not performed. If First Shanghai and Dahlia did intend it, they should make their intention abundantly clear.

31. Time was made the essence and the completion date had to be adhered to. If First Shanghai was entitled to 7 working days to raise requisitions, the completion date could not be adhered to.

32. We are persuaded that "the seven working days" in Clause 11 must be considered in the context of the phrase "as soon as practicable" and in the light of the tight schedule within which the parties intended the transaction to be completed.

33. Looking at the matter in the aforesaid manner, it could not be the objective intention of the parties that First Shanghai be given 7 working days after receipt of the title deeds to raise requisitions. The delivery of the title deeds by WKLL on 24 October 1997 could therefore not constitute a breach in the way found by the judge.

34. Dahlia was entitled to give 3 working days notice to annul the sale after receipt of the requisitions. In the circumstances, First Shanghai had to raise the requisitions at the latest by 28th October 1997 to allow Dahlia the opportunity to exercise the stipulated option. Bearing in mind the repeated requests by Livasiri prior to the execution of the Agreement, it was also Dahlia's case that there should also be an implied term that WKLL should deliver the title deeds shortly after the 22nd of October 1997 if not on the same day. By delivering the title deeds only on 24 October 1997 at around 5 p.m. and only after the further demand by Livasiri on 23 October 1997, Dahlia was in breach of the implied term.

35. The judge made no finding on this issue and perhaps it was not entirely appropriate for us to deal with it. However, bearing in mind the large number of documents involved and the fact that Dahlia only executed the Agreement on 23 October 1997, the delivery of the title deeds on 24 October might not be so unreasonable as to constitute a breach of the Agreement. After all, Livasiri would still have 3 to 4 days to raise requisitions. If Livasiri was to deal with the matter expeditiously as he should, such period would be reasonably adequate.

36. Even if Dahlia was in breach by delivering the title deeds late on 24 October 1997, be it of the express or the implied term, we agree with the submissions of Mr Ho SC that First Shanghai had by the conduct of Livasiri waived its right to terminate the Agreement.

37. In considering the question of waiver, it must be borne in mind the tight schedule in which the parties agreed to complete the transaction and a lapse of 2 or 3 days or even less could be most significant.

38. When the title deeds were delivered on 24 October, they were not rejected and no complaint was raised.

39. Livasiri sat on the documents over the next two days and did not start to peruse them until the afternoon on 27 October 1997. Again no complaint was raised. The perusal was completed in the afternoon on 28 October 1997 by which time Livasiri must be fully aware of any alleged defects in the documents delivered. Livasiri was able and did formulate requisitions on the documents.

40. In the mean time, there was further correspondence between WKLL and Livasiri which discussion was consistent with the continuation of the Agreement. In particular, on 28 October 1997, Livasiri wrote to WKLL in the following terms:

" We refer to your letter dated 26th October 1997.

We are returning the Agreement for Sale and Purchase for your attention. Please add the name of the signatory to be signed for and on behalf of your client and arrange for this signature to be properly attested to by yourselves.

The Agreement is sent subject to your undertaking to return the same to ourselves by close of business of tomorrow."

41. The letter was simply inconsistent with any suggestion that First Shanghai had not waived any breach on the part of Dahlia.

42. The purported termination of the Agreement was not communicated until 30 October 1997, one day before the scheduled completion.

43. In our views, the conduct of First Shanghai, through Livasiri as a whole clearly demonstrated an unequivocal, precise and unambiguous forbearance. It would be inequitable for First Shanghai to insist to have the title deeds delivered before 24 October 1997, even if such right existed. First Shanghai was not entitled to terminate the Agreement on such ground.

44. One of the findings of the judge was that First Shanghai was in any event entitled to terminate on 30 October 1997. It was not entirely clear the basis of such finding. At page 19 of the judgment, the judge said the following:-

"I find that the Purchaser was entitled to terminate the agreement on 30 October.It was clear that the requisitions were properly raised.... It is well-established law. That 'a purchaser must be given reasonable time to consider the title of the vendor and his own position: the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion' (Active Keen Industries Ltd v. Fok Chi-keong[1994] 1 HKLR 396, 406). Under those circumstances, completion being the next day in the absence of any agreement to postpone completion, the Purchaser was entitled to stand on its contractual rights to terminate the contract in anticipation of completion date."

45. It appeared to be the decision of the judge that irrespective of the 7 working days provision under Clause 11 of the Agreement, Dahlia was obliged to supply title documents in time so as to allow First Shanghai adequate time to consider the matter. The suggestion appeared to be that as Dahlia only delivered the documents on 30 October 1997 and was thus in breach of the obligation.

46. Under Clause 6 of the Agreement, Dahlia had to prove title prior to completion and had to furnish to First Shanghai copies of any deeds or documents of title, wills and matters of public record as may be necessary to complete such title.

47. There was of course the implied obligation to answer requisitions and objections and First Shanghai must be given reasonable time to consider the title and its own position. "The implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion." (Active Keen Industries Ltd. v Fok Chi-keong supra per Litton JA at p.406)

48. Clause 11 of the Agreement referred two types of documents, namely (1) "title deeds in the possession of the Vendor" (round 1 documents) and (2) documents supplied in response to "objection or requisition in respect of the title conveyance or any matter appearing on the title deeds or particulars or conditions or otherwise of the Property" (round 2 documents).

49. It could not be seriously suggested that all relevant documents had to be supplied as soon as practicable within 7 working days. Such documents might not be deeds or documents of title, wills and matters of public record necessary to complete the title within the meaning of Clause 6 of the Agreement. Indeed the round 2 documents could and should be supplied only in response to requisitions and not otherwise.

50. We have considered carefully the letter addressed to Livasiri by WKLL on 30 October 1997 together with the documents supplied there under. With respect, what WKLL did was trying to respond to the queries raised by Livasiri on the same day. The documents supplied were not round 1 documents within the contemplation of the Agreement.

51. Even if the documents supplied on 30 October 1997 were documents of title. The failure to supply such documents prior to 30 October 1997 would not allow First Shanghai to terminate the Agreement on that day.

52. In A-Mayson Development Co Ltd v. Betterfit Ltd [1992] 2 HKC 533, Godfrey J (as he then was) said at page 535:

"There are circumstances in which the purchaser may call off the contract at once, without waiting to see whether the vendor can succeed in proving title on or before completion: see Price v Strange [1947] Ch 337 per Goff LJ at p 355. For example, in my judgment the purchaser does have a right to call off the contract as soon as he discovers a fundamental defect in the title, or some other fundamental breach of contract by the vendor. However, although, upon discovering before completion a fundamental defect in the vendor's title, the purchaser may thereupon treat the contract as at an end, in my opinion he may not do so merely for minor deficiencies, removable defects, matters of conveyance and so on: compare Pips (Leisure Productions) Ltd v Walton (1981) 260 EG 601, per Megarry VC at pp 603, 604. Where proof of title is insufficient, but the title is not necessary defective, the purchaser is, in my judgment, bound in the ordinary way to give the vendor a proper opportunity of establishing the title: see Re Balen and Shepherd's Contract [1924] 2 Ch 365, per Tomlin J at p 378."

53. There was no fundamental defect in the title nor was there any fundamental breach of contract by Dahlia which justified the termination of the Agreement by First Shanghai. Dahlia had not by words or conduct evinced an intention not to perform. Indeed, Dahlia was eager to complete the transaction on the scheduled completion date and it was First Shanghai that tried to call off the Agreement at the last minute.

54. It was suggested that First Shanghai had not been given reasonable time to consider the title of Dahlia and its own position when documents were supplied less than 24 hours before the deadline for completion.

55. Quite apart from the nature of the documents in question, the period available to First Shanghai be it less than 24 hours, was not unreasonable bearing in mind the tight schedule within which the parties had agreed to compete the transaction.

"The contract is one for the sale and purchase of property in Hong Kong. In assessing what constitutes a reasonable period for present purposes, the court takes into account all matters relevant to completing such a contract which both parties are, or may objectively be taken to be, aware of at the time of making the contract. The time which the vendor must allow is the time reasonably required by the purchaser to perform its obligations in relation to such completion, in the ordinary course of business." (per Ribeiro PJ in Kensland Realty Ltd v Whale View Investment Ltd & Another [2002] 1 HKLRD 87 at p. 109)

56. In any event the delay was in fact caused by First Shanghai. Faced with the immediacy arising out the tight schedule, First Shanghai should have acted more expeditiously. If proper requisitions were raised on or before 28 October 1997, there would be adequate time before 31 October 1997 for Dahlia to respond to them and for the response to be considered. Instead First Shanghai chose to delay the matter and did not raise any requisition until 30 October 1997. First Shanghai was deemed to have accepted the title of Dahlia. The complaints about the late delivery of the documents on 30 October 1997 were unjustified.

57. At page 21 of her judgment, the judge also said:

"It is not open to the Vendor to say that if the Purchaser needed time, then it could have asked for it. The late delivery of the responses and new materials were of the Vendor's own doing. It having been in breach such as to render the Purchaser's performance of the contract impossible within the contractual time frame, it had the burden to 're-enable' such performance by offering further time (Wong Kam Lan v Well Win Investment Ltd [1996] 2 HKC 143 at 150)

58. The delays were not of Dahlia's doing. It was the doing of First Shanghai when it raised requisitions on 30 October 1997 after it was deemed to have accepted the title of Dahlia. Dahlia could have offered an extension of time but it was not obliged to. Indeed the notion of extension of time in a contract that stipulated time be of the essence was expressly rejected by the Court of Final Appeal in Kensland Realty Ltd v. Whale View Investment Ltd & Another (supra) at p 98 per Bokhary PJ:

"The Court of Appeal thought that the consequence of a vendor's failure to give split payment information within time was the operation of a further implied term, being one that the vendor would grant the purchaser such extension of time as the purchaser reasonably required to comply with the late split payment direction. That is open to two objections. First, it forces a late completion on the purchaser. Secondly, it involves the impermissible course of implying a term which contradicts an express term, namely the one for completion by the stated deadline with time being stated to be of the essence."

59. Ribeiro PJ made similar observation at p 106:

"In a well-known passage, Lord Simon, expressing the majority opinion of the Privy Council, sets out the requirements for implying a term in a written contract:

'.......for a term to be implied, the following conditions (which may overlap) musts be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it musts be capable of clear expression; (5) it must not contradict any express term of the contract.' BP Refinery (Westernpoint Pty Ltd v. Shire of Hastings (1978) 52 ALJR 20 at p. 26.

The fifth requirement is of importance. While room for argument exists as to how precisely the first limb of the Court of Appeal's implied term ought to be formulated, no one doubts that some such term, importing a 'reasonable time' condition, must be implied. However, the second limb of the Court of Appeal's implied term offends against Lord Simon's fifth requirement and cannot be supported."

60. Clearly Livasiri had decided not to complete the transaction. That could be demonstrated in the evidence of Mr. Hodgson. As suggested by Mr Ho SC, nothing would have changed his mind. Livasiri attempted to rely on the alleged failure to deliver title deeds in time. Such attempts failed. First Shanghai was deemed to have accepted Dahlia's title and it must completed the transaction on 31 October 1997.

61. First Shanghai had repudiated the Agreement and Dahlia was entitled to forfeit the deposit and held First Shanghai liable for breach of the Agreement.

62. In the circumstances, the appeal is allowed and the orders of Yuen J are set aside. First Shanghai's claim against Dahlia is dismissed. There will be judgment for Dahlia on its counterclaim on liability against First Shanghai with damages to be assessed. There will also be an order nisi that the costs here and below will be to Dahlia to be taxed if not agreed.