XCHRX TAM LAI KING and Another v. CHAN WAI SHING and Another

1997, No.A4192

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H E A D N O T E

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Application to strike out Amended Endorsement and Statement of Claim under Order 18, rule 19(1)(a) of the Rules - whether Original Agreements discharged by Cancellation Agreement entered into by plaintiffs and defendants on the original completion date if a forgery as alleged by plaintiffs - whether solicitor retained by a party in a conveyancing transaction has apparent authority to enter into agreement to cancel agreement for sale and purchase

Simultaneous breach by purchasers (plaintiffs) and vendors (defendants) under agreements for sale and purchase - whether primary obligations remained intact - whether implied term that either party entitled to call for completion within a reasonable time

Held, the pleadings disclose a reasonable cause of action based on defendants' failure to complete within a reasonable time after being called upon to do so since it has not been shown that the agreements had been discharged, and the primary obligations were unaffected by the simultaneous breach.

1997, No. A4192

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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REASONS FOR DECISION

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1. This is an application by the Defendants by summons dated 24 July 1997 to strike out the Plaintiffs' Endorsement of Claim and Statement of Claim as disclosing no reasonable cause of action pursuant to O.18, r.19(1)(a) of the Rules of the Supreme Court. The application was dismissed with costs. The reasons appear below.

2. Both the writ and the Statement of Claim were amended on 23 September 1997 which is subsequent to the date of the Defendants' summons. It is the Amended Endorsement on Writ and the Amended Statement of Claim that the Defendants wish to strike out and the summons has been so treated.

The Amended Statement of Claim

3. The facts pleaded include the following. The Plaintiffs and the 1st Defendant are respectively the Purchasers and the Vendor under a Sale and Purchase Agreement (the 1st Agreement) dated 7 June 1996 relating to property known as Flat A, 18th Floor, Panorama Court, 28 Hong Lee Road ("the Property"). The Plaintiffs and the 2nd Defendant are respectively the Purchasers and the Vendor under a Sale and Purchase Agreement also dated 7 June 1996 (the 2nd Agreement) relating to Carpark No.A106, Panorama Court, 28 Hong Lee Road. Under the 1st and 2nd Agreements (collectively "the Agreements") , the date for completion was 31 December 1996. By mutual agreement, this was postponed to 15 January 1997. The Plaintiffs and the Defendants instructed separate firms of solicitors to handle the transaction. For convenience, I shall refer to the Plaintiffs' and Defendants' then solicitors as "MH" and "RT" respectively.

4. Completion did not take place on 15 January 1997. There is a Cancellation Agreement of that date allegedly entered into between the Plaintiffs and the Defendants. The Plaintiffs assert that the Cancellation Agreement is a forgery and that it is null and void. The Defendants did not perform their obligations under the Agreements, believing erroneously that there was in existence a valid and binding Cancellation Agreement. The Plaintiffs for their part also did not perform their obligations under the Agreements because MH had misrepresented to the Plaintiffs that there was an agreement to postpone the completion of the Agreements pending the resolution of the problem which only came to MH's knowledge just before the date for completion relating to the registration of a charging order entered against the Properties by a judgment creditor of the Defendants. Acting on those misrepresentations, the Plaintiffs did not tender the balance of the purchase price on 15 January or perform their other obligations under the Agreements and further, acting on those misrepresentations, they received the interim return of the deposits and stamp duty. Both parties were thus simultaneously in breach of their respective obligations under the Agreements.

5. The Plaintiffs assert that in fact, prior to the date of completion, MH, acting without authority from the Plaintiffs, agreed with RT to cancel the Agreements. They further assert that the Defendants' solicitors (and therefore the Defendants themselves) knew or ought to have known or had constructive knowledge of the fact that the agreement to cancel the Agreements was not authorised by the Plaintiffs and that therefore the purported agreement to cancel the Agreements was not binding on the Plaintiffs.

6. The Plaintiffs also assert that the resulting legal consequence of a simultaneous breach is that the primary obligations remain intact. See Chitty on Contracts 27th Edition, paras.24-013 and 24-014. As a result, under the terms of the Agreements, completion remained at large, there being an implied term that either party was entitled to call for completion within a reasonable time. The Plaintiffs served a notice on the Defendants in early April calling for completion within a reasonable time. The Defendants refused and it is this breach that lies at the heart of the Plaintiffs' action against the Defendants. The Plaintiffs seek damages against the Defendants for failure to complete within a reasonable time of their notice calling for completion.

Did it disclose a reasonable cause of action?

7. Whilst the facts of this case are somewhat unusual, the breach of contract relied on by the Plaintiffs is the Defendants' failure to complete the Agreements in April 1997. This must constitute a reasonable cause of action unless it can be shown that the Agreements were discharged before April 1997. The Plaintiffs assert that the Cancellation Agreement being null and void could not and did not bring about the termination of the Agreements and is no answer to the Plaintiffs' claim. Nor are the Plaintiffs bound by any purported agreement between the parties' respective solicitors to cancel the Agreements : a solicitor retained to represent a party in a conveyancing transaction has no apparent authority to enter into any agreement to cancel it and in the present case, it is alleged that the Defendants' solicitors (and therefore the Defendants) knew or ought to have known or have constructive knowledge of the fact that such purported agreement to cancel was not authorised by the Plaintiffs. Thus, central to the Plaintiffs' case is the assertion that the primary obligations under the Agreements remained unaffected by the simultaneous breach that occurred on 15 January 1997.

8. The Cancellation Agreement may have come about as a result of complicity between MH and RT. Any fraud or negligence on their part might found separate actions by their respective principals, i.e. the Plaintiffs or the Defendants as the case may be. But such separate causes of action are irrelevant to the issue which is whether the Amended Statement of Claim discloses a reasonable cause of action against the Defendants. The submission of counsel for the Defendants that the Plaintiffs' claim is for damages for conspiracy occasioned by third parties is not borne out by a fair reading of the Amended Statement of Claim and shows a total misapprehension of the Plaintiffs' case.

9. The Defendants rely on the registration of the Cancellation Agreement. But registration itself does not operate to validate an instrument that would otherwise be a nullity.

10. The Defendants did not attempt to challenge the proposition that the primary obligations remain unaffected by the simultaneous breach or show that it is unsustainable as a matter of law. Rather, the focus of the Defendants' objections to the pleadings appeared to be on causation. As I understand it, the submission was to the effect that as the breach of contract was procured by third parties who conspired to interfere in the contractual relationship between the Plaintiffs and the Defendants, they and not the Defendants are responsible for any loss so caused. I do not see how that has any bearing on the cause of action disclosed on the pleadings which is a breach of contract claim against the Defendants. The fact that the Defendants may have a separate cause of action against third parties such as RT for any loss that they may be liable to the Plaintiffs does not undermine the cause of action as pleaded against the Defendants.

11. I have not found the submission of counsel for the Defendants entirely easy to follow. Suffice to say that the cases relied on, namely Beoco Limited v. Alfa Laval Co. Ltd. January 12, 1994, The Times Law Reports 15 and Galoo Ltd. v. Bright Brahame Murray, January 14, 1994, The Times Law Reports 25, respectively deal with loss of profit caused by a breach of contract and the effect of a supervening event on that loss and causation in a breach of duty claim. Since those issues do not arise in the present case, the cases cited are of no assistance to the Defendants.