CHAMPION CONCORD LTD AND ANOTHER v. LAU KOON FOO AND ANOTHER

HCCL 1/2010 and
HCCL 5/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 1 OF 2010

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(Heard Together)

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J U D G M E N T

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These applications

1.  This is a dispute over the sale and purchase of a village house.

2.  It has generated considerable heat, and has resulted in the issuance of two separate actions, one the mirror image of the other, and respective Order 86 applications, once again one mirroring the other, with which cross-applications this judgment is concerned.

3.  In ‘the first action’, HCCL 1 of 2010, the writ therein being issued on 5 February 2010, the 1^st plaintiff is Champion Concord Limited, the putative purchaser of the house in question on behalf of the 2^nd plaintiff, Craigside Investments Ltd.

4.  The 1^st defendant in this action is one Lau Koon Foo, at one stage the putative vendor of the village property, but who now maintains that the agreement to sell has fallen in and is no longer operative, and accordingly that he no longer has any obligation towards the plaintiffs.

5.  The 2^nd defendant is named as the District Lands Officer (‘DLO’), Sai Kung, whose formal participation in these proceedings is relevant by reason of the administrative action which will need to be taken in order to achieve the assignment of the village house to which the plaintiffs maintain they are entitled.

6.  In this first action it is the plaintiffs who have issued an Order 86 summons dated 9 February 2010; a draft Minute annexed to that summons requests, inter alia, an order in declaratory terms as to the parties remaining bound by the agreements made, and a correlative order that the 1^st defendant, Mr Lau Koon Foo, do effect specific performance of what is contended to be his extant obligation to sell the property.

7.  The first action was followed soon after by ‘the second action’, HCCL 5 of 2010, the writ being issued on 24 March 2010 and wherein the plaintiff is the aforesaid Mr Lau Koon Foo, with the plaintiffs in the first action being named as the 1^st and 2^nd defendants respectively.

8.  As the plaintiff in this second action, Mr Lau issued his own Order 86 summons dated 25 March 2010, the relief sought therein reflecting Mr Lau’s view of the merits of the matter: declaratory relief is sought against both defendants to reflect the alleged “automatic cancellation” of the sale and purchase of the property, there is a request that various registrations in the Land Registry be consequentially vacated, and an order for the delivery up of vacant possession of the village house, together with a claim for damages or mesne profits to be assessed until the delivery up of such vacant possession, whereupon the return of a deposit of HK$600,000 will be made by Mr Lau to the 1^st defendant, Champion Concord.

9.  At bottom, therefore, two actions and two applications for summary relief, with each side at the other’s throat, and with each employing senior counsel to argue their case: Mr Barrie Barlow SC for Champion Concord and Craigside Investments, and Mr John Scott SC leading Mr Lawrence Ng, for Mr Lau Koon Foo.

10.  The DLO was unrepresented during this argument.

The factual background

11.  Although ultimately this dispute resolves itself into an issue of contractual construction - as to which the two sides have a sharply divergent view - a brief explanation of the background facts is necessary to place this dispute into context.

12.  Mr Lau is the registered owner of a property in Sai Kung, the address of which is House No 82, Ng Fai Tai, Sai Kung, NT.

13.  This property was subject to a building licence imposing conditions upon alienation; these include the requirement for payment to the Hong Kong Government of a premium (to be quantified by the DLO) for any sale of the property to a ‘non-villager’.

14. In July 2005 Mr Lau, the registered owner, asked the DLO for his consent to his selling to a non-villager, and requested identification of the premium thus payable.

15. On 17 January 2006, Mr Lau, as Vendor, and Champion Concord, as Purchaser, entered into an Agreement for the sale and purchase of the property for the sum of HK$6 million, with HK$600,000 paid as deposit, and the balance due upon completion. 

16. A provisional completion date was fixed for 14 May 2007, and two leases were granted in favour of Champion Concord (of the Ground Floor) and Craigside Investments (of the 1^st and 2^nd floors and roof) pending completion.

17. It was agreed that the premium payment would be made by the purchaser, Champion Concord, in addition to the purchase price.

18. The respective lessees, Champion Concord and Craigside, duly took possession under the two leases.

19. On 25 February 2006 the DLO wrote to Mr Lau stating that he would consent to the assignment of the property by 17 March 2006 upon payment of a premium of HK$470,200 plus a fee of HK$650, failing compliance with which the offer of consent would lapse.

20. It appears, however, that Mr Lau had changed his mind, and no longer wished to sell.  He did not inform the putative purchasers (and current lessees) of the DLO correspondence, and on 21 March 2007, by letter through his solicitors, M/s Wong Poon Chan Law & Co., there simply was stated: “We are instructed that our client is not going to sell the property”.

21. As a consequence, Champion Concord commenced HCA 1497 of 2007 (‘the 2007 action’) seeking an order for specific performance against Mr Lau.

22. However, this action did not go to trial.

23. As a result of intervention from a Master, the parties were asked to go to mediation, from which a Settlement Agreement emerged, dated 10 March 2009.  It is the construction of particular clauses of this mediation Settlement Agreement which is the subject of debate in these applications.

24. In substance what this Settlement Agreement achieved was as follows: the 2007 action was discontinued, the existing Sale and Purchase agreement was varied and confirmed to be extant, and Mr Lau, the Vendor, expressly agreed to render all necessary assistance in obtaining the consent of the DLO to the assignment.  Completion was scheduled for 30 days following provision of the DLO’s consent within 10 months from the date of the Settlement Agreement (termed the ‘Long Stop Date’), or, in certain circumstances (which lie at the heart of this dispute), not later than the expiry of a further 12 months (the ‘Extended Long Stop Date’).

25. As a matter of chronology, the parties are now in the ‘Extended’ completion period envisaged by the Settlement Agreement.

26. I am informed that the DLO now has identified the relevant premium, and that Champion Concord now has paid that premium plus associated fees.  I am also told that the DLO requires Mr Lau, the putative vendor, to sign a ‘Toleration Letter’ accepting the HKSARG terms of consent, but that Mr Lau has declined so to do.

27. Mr Lau’s position is that, on a proper construction of the Settlement Agreement, his obligation to sell the property has terminated: in the words of the Settlement Agreement upon which he relies, the Agreement has been “automatically cancelled”. 

28. The putative purchasers disagree - hence this litigation.

The principles of construction

29. There is no dispute as to the appropriate principles of construction of contracts for the sale and purchase of real property.

30. Mr Barlow has drawn my attention to well-known dicta in Marble Holdings Ltd v Yatin Development Ltd, FACV No 21 of 2007, per Mortimer NPJ (at paragraphs 19-20), wherein his Lordship cites with approval the principles set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912F-913F, and to the observations of Lord Bingham in BCCI v Ali [2002] 1 AC 251 (at para 8).  See also in this context Lord Hoffmann’s celebrated dictum in Jumbo King Ltd v Faithful Properties Ltd & ors (1999) 2 HKCAR 279 at 296:

“The construction of a document is not a game with words.  It is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.  Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well.  Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended…”

31. Counsel for the plaintiff also invoked the judgment of Tang JA in Goldlion Properties Ltd v Regent National Enterprises Ltd [2008] 3 HKLRD 104, at 119-120, wherein the learned judge referred to the necessity to construe clauses so as to give a commercially sensible construction, “and that the so-called rules of construction should be very much a matter of last resort…”, and emphasised that agreements for the sale and purchase of real property usually contain clauses expressly or impliedly requiring the parties to co-operate in the performance of that contract, noting that Ribeiro PJ in Ying Ho Co Ltd v Secretary for Justice (2004) 7 HKCFAR 333, had observed (at 379) that the court is often willing to imply a term that the parties shall co-operate to ensure performance of their bargain, citing Chittty on Contracts (29^th ed., 2004) Vol 1 at para 13-011.

32. In this connection two further propositions should not be overlooked, submitted Mr Barlow: first, that a party in breach of an agreement for the sale and purchase of real property will not be permitted to profit or to take advantage of his breach - see Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, at 410-416; and second, that upon a vendor entering into an agreement for the sale and purchase of real property, he becomes a trustee for the purchaser of the estate sold, and the purchaser becomes the beneficial owner of the property, whilst the vendor enjoys the right to the price and a charge over the property plus the right to possession pending completion: see Lewin on Trusts (18^th ed.), paras 10-03-04; Jones and Goodhart on Specific Performance (2^nd ed.), at 201-202.

33. For his part Mr Scott SC does not, I think, demur from these propositions qua propositions.  He simply says that when the provisions of this agreement are properly construed, this Agreement neither says, nor means, what Mr Barlow says it means.

34. Mr Scott also observes that this is probably the first case to come before the courts to consider the enforcement of a Settlement Agreement arising out of a mediation, and that the plaintiffs’ claim in HCCL 1 of 2010 simply amounts to a denial and repudiation of the Settlement Agreement which, if countenanced, “will make a mockery of the mediation process”.  With respect, I have difficulty in understanding this latter sentiment, notwithstanding its rhetorical flourish; the Settlement Agreement means what it means, no more or less, and its construction one way or another is no reflection of the process giving rise to it.

35. In any event, Mr Scott submits that the case as now mounted by Champion Concord and Craigside Investments is devoid of merit, and that the Statement of Claim in HCCL 1 of 2010 should be struck out, and further that by reason of the express terms of the Settlement Agreement, in particular Clause 15 thereof, these parties have no defence to his client’s claim in HCCL 5 of 2010.

36. Having defined the parameters of the argument - wherein each side has agreed that this matter now should be decided by this court as a pure question of construction - I turn to the relevant clauses of the Agreement.

The Settlement Agreement: Clauses 13, 14, 15, 16 and 17

37. Clause 13 recites that the ‘Completion Date’ for the sale of this property shall be on or before the 30^th day “from the date on which the DLO consent is obtained”, provided that such day shall not be later than 10 months from the date of the Settlement Agreement [namely, 10 months from 10 March 2009], which date is referred to as the “Long Stop Date”, or, if Clause 16 applies, not later than the expiry of the 12 months’ extension period, referred to as the “Extended Long Stop Date”, for which provision is made in Clause 16; the “Long Stop Date” and the “Extended Long Stop Date” collectively are referred to as “the Completion Date”.

38. Clause 14 recites that if Champion Concord fails to proceed with the Completion on the Completion Date, the Vendor [Mr Lau Koon Foo] is entitled to forfeit the Deposit “and the sale and purchase of the Property … shall be automatically cancelled”.

39. Clause 15 states that “Subject to Clauses 16 and 17 below, if for any reason the DLO Consent is not obtained by the Long Stop Date, the sale and purchase of the Property agreed hereunder shall be automatically cancelled”, and that “within 30 days from the date when the District Lands Office indicated that the DLO Consent is not granted or from the Long Stop Date, whichever is the earlier”, two things were to occur: first, the Deposit should be returned by the Vendor to Champion Concord, and, in turn, vacant possession of the Property and the private garden on the adjoining lot should be returned by Champion Concord and Craigside Investment to the Vendor, Mr Lau.

40. In terms of the present construction dispute, it seems to me that Clause 16 is key.

41. Clause 16 provides that certain stipulated consequences are to occur if:

“In the event that on or before the Long Stop Date [9 January 2010], the District Lands Office decided not to give the DLO Consent and the 1^st Party [Champion Concord] decided to contest such decision of the District Land Office, the Parties agreed that the Long Stop Date shall be extended for a further period of 12 months (‘Extended Period’)”

on the conditions thereafter specified at Clause 16 (1)-(5). (Emphasis added)

42. Clause 17 provides that:

“In the event that Clause 16 is triggered and for any reason the DLO Consent is not granted during the Extended Period notwithstanding any step taken by [the purchaser, Champion Concord] to challenge the decision of the District Lands Office for the refusal to grant the DLO Consent on or before the Extended Long Stop Day, the sale and purchase of the Property agreed hereunder shall be automatically cancelled”,

and further that “within 30 days from the date when the aforesaid contest of the District Land Office’s decision fails or from the Extended Long Stop Day, whichever is the earlier”,

then the deposit shall be returned by Mr Lau to Champion Concord, and vacant possession of the property and the adjoining private garden shall be given to Mr Lau by Champion Concord and Craigside Investment.

The nub of the construction argument

43. Clause 15 provides for the automatic cancellation of the sale and purchase “if for any reason the DLO Consent is not obtained by the Long Stop Date.”

44. It is such “automatic cancellation” that Mr Lau Koon Foo maintains has occurred in this case.

45. However, Clause 15, which lays down the basic approach, expressly is made “Subject to Clauses 16 and 17 below…”

46. The nub of the present argument - the “pivotal and decisive issue” as Mr Barlow put it - thus focuses upon whether the words of Clause 16 are satisfied. 

47. In other words, is it the situation that on or before the Long Stop Date [namely, 9 January 2010] two matters have taken place: first, has the District Lands Office decided not to give the DLO Consent, and second, has Champion Concord decided to contest such decision? - in which eventuality the existing Long Stop Date is extended for a further 12 month period (‘the Extended Period’).

48. As to this, Mr Scott says that on the plain wording clearly this is not the case; he says that Clause 15 already has ‘bitten’, and thus that the sale and purchase has been “automatically cancelled”.

49. Mr Barlow suggests that to interpret these provisions in such manner would be to give effect to a “sterile literalism”, and that the history of events, when taken together with the clear object and purpose of the Settlement Agreement, mandate against such a result.

50. Who is correct?

Decision

51. The vital issue is whether the provisions of Clause 16 have been “triggered”.  Without this, there is no ‘Extended Period’ in place, and the sale and purchase agreement already will have fallen.

52. On the basis of its plain wording, for the provisions of Clause 16 to come into play, there must be a DLO decision not to consent and a contesting of such negative decision by Champion Concord.  If these eventualities happen, then there is to be an additional 12 month period, the ‘Extended Period’, at the end of which whatever happens the sale and purchase agreement is “automatically cancelled”: vide Clause 17.

53. Accordingly, whatever may be thought of the broad merit of this sale and purchase saga - and in my view the historical merit plainly lies with the plaintiff purchasers - it strikes me that it is difficult fairly to construe this mediation Settlement Agreement in the manner in which Mr Barlow would wish.

54. The primary ‘automatic cancellation’ provision within Clause 15 expressly is dependent upon the non-obtaining of DLO Consent “for any reason”.  This starting proposition is plain and could not be in wider terms, nor is there any factual issue but that such DLO Consent was not obtained by the ‘Long Stop Date’, which was 10 months from the date of the Settlement Agreement.

55. Thus, the further 12 month period - the ‘Extended Long Stop Date’ - arises only if on or before the expiry of the initial 10 month period there is in place an adverse decision by the DLO and a consequent contesting of that decision by Champion Concord.

56. However, in order to decide in favour of Mr Barlow’s argument, it would become necessary to interpret the phrase “decided not to give the DLO Consent” - that is, a DLO refusal - as signifying not a specific decision to refuse consent (which in turn would trigger a contesting of such a refusal), but instead as meaning merely an absence of any such a DLO decision on the point by the relevant date.

57. And if the phrase were to be thus broadly construed, the correlative question would arise as to how any such ‘non-decision’ could be contested?  Clearly it could not.

58. The necessity for the conclusion that an adverse DLO decision has to have been made appears to be reinforced by the use of the phrase “…and for any reason the DLO Consent is not granted during the Extended Period…” within the opening sentence of Clause 17.

59. The hard fact is that the parties to the Settlement Agreement pointedly have not chosen (as well could have been the position) to have said that if there is no DLO decision within the initial 10 month period leading up to the ‘Long Stop Date’, then the absence of any such decision necessarily would lead to the creation of an additional 12 month period, termed the ‘Extended Period’, in order in order to enable such consent to be obtained, and that if, and only if, at the end of that Extended Period no DLO decision is reached, the sale and purchase will automatically terminate. 

60. However, demonstrably that is not what is stated to have been agreed.  To the contrary.  The occurrence of an additional 12 month period in which to obtain the relevant DLO Consent expressly is predicated upon an adverse decision by the DLO plus a correlative contesting of that decision (which on any view does not represent the undisputed factual situation), and in my judgment the specificity of the events which it is said will lead to the additional 12 month period cannot simply be overlooked in favour of a broader – and far less specific – construction.

61. In these circumstances I am driven, admittedly somewhat reluctantly, to the conclusion that Mr Scott is correct, and that, whilst Clause 15 expressly is qualified by the provisions of Clauses 16 and 17, in fact such qualifying provisions simply are not, and never became, engaged.

62. Thus, as Mr Scott further submits, the ineluctable conclusion is that in the circumstances one must return to the clear provisions of Clause 15, and to his client’s present contention that, on the basis of the operation of that clause, the sale and purchase already has been “automatically cancelled”.

63. In light of the history of events, and in particular Mr Lau Koon Foo’s earlier concealing of the correspondence with the DLO from Champion Concord prior to the discontinuation of the 2007 action, and the consequent mediation and entry into the mediation Settlement Agreement, I confess that this result is not one which I regard with unalloyed satisfaction.

64. However, in my view these prior events - and any consequent causes of action arising therefrom -  have been subsumed within the Settlement Agreement as executed by the parties consequent on the mediation, and thus the sole ‘live’ issue for this court is the construction of that Settlement Agreement, so that the respective cases must stand or fall on the basis of such construction.

65. Thus, even though Champion Concord apparently now has paid the premium and associated administrative fees, this is nothing to the immediate point, which is whether, at the time of such payment, the sale and purchase agreement remained extant.

66. Regrettably, I have concluded that it did not remain so alive, and that, as now is claimed by the 1^st defendant in HCCL 1 of 2010, it had been “automatically cancelled” pursuant to the provisions of the Agreement.

67. The parties could have said something different, but for whatever reason they did not, and this court legitimately can divine their intentions only on the basis of the language actually used in the Agreement when considered against the backdrop of the prevailing (and undisputed) factual matrix.  However, any view as to the ‘inherent equities’ of the situation as has arisen cannot trump the clear words of the Agreement, and in a pure construction debate in my judgment it is not open to the court to ignore, and thus effectively to rewrite, that which the parties have chosen to say about the precise circumstances in which the ‘Extended Period’ should come into play.

68. Accordingly, whilst I remain less than enamoured of this result, even with a fair wind I am unable to arrive at the construction of this Agreement for which Mr Barlow so persuasively has argued. 

Order

69. It follows from the foregoing that the Orders of this court upon these cross-applications are in the terms set out hereunder:

In the first action: HCCL 1 of 2010

(i) The plaintiffs’ Order 86 summons dated 9 February 2010 is dismissed;

(ii)   The action herein be struck out;

(iii) There be an order nisi that the costs of and occasioned by this summons be to the 1^st defendant, to be taxed if not agreed.

(iv)    There be liberty to the parties to apply as to the terms of this Order.

In the second action: HCCL 5 of 2010

(i) There be an order in terms of subparagraph (a);

(ii)   There be an order against the 1^st and 2^nd defendants in terms of paragraph 3 and 4 of the draft Minute annexed to the summons (‘the draft Minute’);

(iii) There be an order in terms of paragraph 5 of the draft Minute, save that, absent agreement thereon, a Master do make directions for, and there is to be, a formal assessment by a Master of the damages or mesne profits claimed therein;

(iv)    There be an order in terms of paragraph 6 of the draft Minute save that, absent agreement thereon, a Master do make directions for, and there is to be, a formal assessment by a Master of the damages or mesne profits claimed therein;

(v)  Consequent upon such assessment (or agreement as to such), the plaintiff do return to the 1^st defendant the deposit, or so much as remains thereof consequent upon the set-off against that sum of the amount of damages or mesne profits as thus assessed;

(vi)    There be an order nisi that the 1^st and 2^nd defendants do pay the costs of and occasioned by this application, and of this action, to the plaintiff, such costs to be taxed if not agreed.

(vii)  There be liberty to the parties to apply as to the terms of this Order.