ATTORNEY GENERAL v. SUPREME YEAR LIMITED

1984, No. 8067

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Defendant is a limited company which carries on business in Hong Kong as a property development and investment company.

2. On 11 March 1980 the Plaintiff acting by the Principal Government Land Agent offered for sale by public auction certain land comprising Lot 957 ("the Lot") upon terms and conditions contained in the Conditions of Sale published prior to the auction. As the highest bidder at a premium of $22.8 million, the Defendant entered into a Memorandum of Agreement ("the Agreement") with the Plaintiff under which the Defendant agreed to pay the premium and become the lessee of the Lot subject to, and to perform and abide by, the Conditions of Sale.

3. Of the premium of $22.8 million, $500,000 was paid by the Defendant as a deposit and the balance was to be paid within 3 days unless the Defendant elected to pay by instalments. The Defendant did elect to pay by instalments. Payments totalling $7,592,668.20 were made to the Plaintiff prior to 11th March 1983, but the Defendant defaulted in respect of the instalment of premium due on that day, the 11th March 1983.

4. Following such default of payment the Plaintiff re-entered the Lot on 8th September 1983 under general Condition No. 12 of the Agreement and in accordance with section 4 of the Crown Rights (Reentry and Vesting of Remedies) Ordinance, Cap. 126 (which provides for registration of a memorial of re-entry by the Crown).

5. The Plaintiff by paragraph 8 of the statement of claim relies upon a letter he sent to the Defendant on 9th May 1984 stating that the Defendant's failure to pay instalments of premium when due amounted to a repudiation of the Agreement and that such repudiation was thereby accepted and that the whole of the unpaid balance of premium was due.

6. Subsequently taking the view that he could not reprobate by relying upon acceptance of that repudiation of the Agreement and at the same time approbate by claiming under it, the Plaintiff with leave added a new paragraph claiming in the alternative that he had suffered damage in consequence of the Defendant's breaches of the Agreement.

7. The Plaintiff now asks for judgment for the balance of the premium outstanding i.e. $14,644,671.17, and also for damages to be assessed.

8. No appearance was made at the hearing on behalf of the Defendant. The Defendant's solicitors having filed a defence in January 1985 and an amended defence in March 1985, were subsequently unable to secure further instructions from the Defendant and with leave ceased to act for the Defendant.

9. The first matter that arises under the amended defence is the nature of the Agreement, which the Defendant appears to confuse with the Crown lease to be granted under it. In my judgment the former is clearly an agreement between the Plaintiff and the Defendant which stands independently of the Crown lease to be granted under it. The Agreement itself creates certain rights and obligations which are not any the less so because some of them might be superseded, subsumed or duplicated in the Crown lease if and when granted. As a consequence the termination of the Agreement would not necessarily determine the lease, assuming it to have been granted, nor would determination of the lease necessarily terminate the Agreement. That seems to me to be plain from the provisions of the Agreement. Some authority for such a view of similar provisions and circumstances was cited to me by the Solicitor general appearing for the Plaintiff, but I see no need to rely upon it.

10. The second issue that arises is whether upon the true nature of the Agreement, the failure of the Defendant to pay the instalment due on 11th March 1983 constituted a repudiatory breach entitling the Plaintiff to accept the repudiation and terminate the Agreement. In my view having regard to the nature of the Agreement the answer must plainly be in the affirmative. The Defendant seeks in reliance upon General Condition No. 5 to contend that only if the Defendant failed to pay the balance of the 10% of the premium and the whole of the first annual premium referred to in that condition, could the Plaintiff cancel or repudiate the Agreement. General Conditions 5 and 12 are framed in the following terms:

"5.    If the purchaser shall on the fall of the hammer, fail to make the required deposit to account of the premium, as provided in General Condition No. 4(a) hereof, Her Majesty may enforce the sale or the auctioneer may declare the sale void and re-expose the lot for sale, but without prejudice to recourse against the defaulting purchaser should the lot on re-sale not realize the amount of such defaulting purchaser's highest bid. If the purchaser shall fail to pay the balance of the premium as provided in general Condition No. 4(a), or if having elected to pay 90% of the premium by annual instalments, he shall fail to pay the balance of 10% of the premium and the whole of the first annual instalment as provided in general Condition No. 4(c) hereof, Her Majesty may either enforce or cancel the sale. On can-cellation the said payment to account of premium by the defaulting purchaser shall be wholly forfeited to Her Majesty, and Her Majesty shall be at liberty to resell the lot at such time and place and in such manner as Her Majesty shall deem fit, and all expenses attending a resale or attempted resale and any deficiency which may result on a resale shall be made good and paid by the defaulting purchaser and be recoverable by Her Majesty as liquidated damages. Any increase of price on resale shall belong to Her Majesty.

12(a)    Should the purchaser fail or neglect to observe or comply with any of the conditions of this Agreement, the Crown shall be entitled to re-enter upon and take back possession of the lot or any part thereof and all or any buildings, erections and works thereon or on such part, and thereupon this Agreement and the rights of the purchaser hereunder shall absolutely cease and determine (in respect of such part if the reentry is upon a part only) but without prejudice to the rights, remedies and claims of the Crown in respect of any breach, non-observance or nonperformance of the terms and conditions hereof.

    (b)    In the event of re-entry by the Crown for or in respect of or arising out of the breach, non-observance or non-performance by the purchaser of the provisions of teh General and Special Conditions, the purchaser shall not be entitled to any refund of the premium paid by him or any part thereof or to any payment or compensation whatsoever whether in respect of the value of the land or any buildings thereon or any amount expended by the purchaser in the preparation, formation or development of the lot or otherwise. "

11. On the plain wording of the foregoing conditions, the Defendant's contention is in my view untenable. On the true construction of the Agreement I hold that the immediate remedy in general condition 5 does not displace the general remedy of re-entry under general condition number 12.

12. It is not disputed that the Defendant did not pay the instalment of premium due on 11th March 1983. That was clearly a breach of condition and entitled the Plaintiff to re-enter upon and take possession of the Lot which he did. In consequence the Agreement must thereupon have immediately terminated but without prejudice to the rights of the Plaintiff, both under general condition 12 and the Plaintiff's acceptance of the Defendant's repudiation by re-entry.

13. The question then arises of what were the rights of the Plaintiff. The Defendant in paragraph 7 of its amended defence contends that upon such termination of the Agreement all rights to receive and obligation to pay subsequent instalments were extinguished. That is not an unattractive proposition for it would seem that the Plaintiff could otherwise recover and retain the entire premium, and also the property even in circumstances where no loss might occur. However that consideration and indeed the entire situation was carefully considered by the House of Lords in Hyundai v Papadopoulos [1980] 2 All. E.R. 29 in which, after careful review of the authorities, it was held in respect of instalments payable under a shipping contract, that cancellation or recission of a contract in consequence of repudiation did not affect accrued rights to the payment of instalments of the contract price unless the contract provided that it was to do so. In the present case the premium was to be paid in 3 days; the Defendant elected to pay it in 10 annual instalments. Clearly there was an accrued right to payment of all the instalments, notwithstanding that the time of payment was deferred. It follows that the Plaintiff is entitled to payment of the balance of the premium.

14. But the Defendant goes on to contend that any right to forfeit that part of the premium already paid and to recover the balance, constitutes a penalty. I reject that contention, which seems to me to be misconceived, in that the Defendant in my judgment had received or was in the process of receiving that which he had agreed to purchase, and that the total premium represented the price he had freely agreed to pay. However that maybe, in any event, upon the propositions and tests detailed by Dunedin L.J. in Dunlop Pneumatic Tyre Co. v New Garage & Motor Co. 1915 AO 79, it seems to me that payment and retention of the total premium would patently not be a penalty.

15. It is also contended in the amended defence that the grant of the Crown lease was a condition precedent to the payment of the premium. This contention, it seems to me, is founded upon the confusion that I have already referred to between the Agreement and the lease to be granted under it. It is in any case perfectly clear from the Agreement that payment of at least one instalment of the premium, and the possibility of all the instalments prior to the grant of the Crown lease was clearly envisaged. Furthermore the Defendant was in possession, for what appears to be a very substantial period of over 3 years, not as a licencee but in the position of a lessee. A person occupying under an executory agreement for a lease is to be treated as holding on the terms of the agreement (Walsh v Lonsdale (1882) Ch 9). There is accordingly no merit in this contention.

16. It was finally contended in the amended defence that the Plaintiff has failed to take any or any reasonable steps to mitigate its losses by failure to resell the said Lot or any part thereof. The onus is upon the Defendant to establish that and in any event since the Plaintiff only asks for the issue of damages to be determined and not for the quantum to be assessed at this stage, mitigation is not a matter that was addressed or that I need concern myself with at the present stage. It is clear that there has been a breach of the agreement and that in principle the Plaintiff is entitled to damages.

17. For all the foregoing reasons there will be judgment in favour of the Plaintiff for -